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The American Prospect - articles by authorenJob Unfairhttp://prospect.org/article/job-unfair
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p>The latest report from the U.S. Department of Labor shows that unemployment shot up to 6.4 percent in June, the highest rate in nine years. But an even more chilling statistic is that for 24 months (and counting), employment is <i>lower</i> than it was one year before. The result has been the longest private-sector employment slump since the Great Depression. Beginning in February 2001, the month after George W. Bush took over the White House, the economy has shed 2.6 million jobs -- equivalent to 93,000 workers joining the unemployment rolls each month.</p>
<p>What is especially surprising is that these job losses keeps occurring even as the economy is growing. We aren't experiencing a "jobless recovery" -- more accurately, this is a "<i>jobloss</i> recovery."</p>
<p>From the end of the third quarter of 2001 through the end of the first quarter of this year, real gross domestic product has increased by a total of 4 percent, almost exactly the same amount as during the same interval following the last recession in the early 1990s. But while the economic growth back then produced more than 563,000 jobs, this time around we have <i>lost</i> more than 1.1 million jobs in an equivalent amount of time and with an equivalent amount of so-called growth.</p>
<p>What explains this sharp contrast between the 1990s and today? In a word, productivity. While the productivity of American workers -- measured by output per hour worked -- grew by a modest 3.8 percent between the first quarter of 1991 and the third quarter of 1992, it rose by an astonishing 7.3 percent from the third quarter of 2001 to the first quarter of 2003. Indeed, productivity grew faster in 2002 than at any time since 1950. With such improved efficiency, companies were able to provide a lot more output with a lot fewer workers. And this is precisely what they did, proving that productivity growth is indeed a double-edged sword. It is great for the economy when demand is strong, but it cuts a terrible swath through the labor market when demand is weak. </p>
<p>The only way to reap the benefits of higher productivity growth without job loss is for the economy to grow even faster. And that requires strong and immediate steps to increase demand.</p>
<p>Until relatively recently, America faced a serious supply-side problem. From the oil crisis in 1973 until 1995, productivity growth slipped to an average of no more than 1.2 percent per year. Business was not improving productivity fast enough to permit much of an increase in the nation's output or standard of living. As a result, wages fell and family incomes stagnated. Fixing the supply-side problem required investment in new technology. It took time, but by the mid-1990s, business had succeeded in mastering the new information technologies in almost every industry, from steelmaking to banking.</p>
<p>This helped produce a near perfect economy in the late 1990s. Productivity grew rapidly. Spurred by consumer spending, so did total demand. The result was falling unemployment, rising wages and improved family incomes. For a brief period, we got the supply side and the demand side right, simultaneously. </p>
<p>Around 2000, however, demand began to slip. The supply side kept doing its part, with productivity improving at a rapid clip. But GDP growth did not keep up, yielding a demand-side debacle. The implication for policy-makers is clear: We must act to increase demand and not worry about what is, for now, healthy supply. This is precisely why the 2001 tax cut and the new tax cuts proposed by President Bush make little sense. It's not simply that they favor the rich -- they also do nothing to solve the key economic problem of the day. They focus on boosting investment and therefore productivity -- currently a nonexistent problem -- while doing little to boost demand, which the economy desperately needs.</p>
<p>Instead of cutting taxes on dividends and reducing rates on the rich, what American workers needed was a sharp, short-term stimulus package big enough to generate sufficient consumer demand to match our current productivity bonanza. Such a package should have included a massive increase in revenue sharing to the states, a much bigger package of emergency unemployment benefits and a single-year tax cut aimed at working families. That would have helped strike a jobs-producing balance between demand and supply today. Without that balance -- without the right combination and the right timing for both demand-side and supply-side policies -- the prospect of a prosperous, full employment future will remain little more than an empty promise. We may get growth, but not enough to produce any jobs.</p>
<p><i>Barry Bluestone is the Russell B. and Andrèe B. Stearns Trustee Professor of Political Economy and director of the Center for Urban and Regional Policy at Northeastern University. He is co-author, with the late Bennett Harrison, of Growing Prosperity: The Battle for Growth with Equity in the 21st Century.</i></p>
</div></div></div>Wed, 16 Jul 2003 15:10:23 +0000140336 at http://prospect.orgBarry BluestoneRewarding Work: Feasible Antipoverty Policyhttp://prospect.org/article/rewarding-work-feasible-antipoverty-policy
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p><font class="nonprinting"></font></p>
<p><font size="+3">V</font>irtually all economists who have studied the<br />
changing income distribution have confirmed what nearly everyone else knows. For<br />
most Americans, living standards are stagnating and becoming more unstable. For<br />
the bottom half, income is falling. And the prime culprit is not shifts in<br />
family values or the work ethic, or even changes in taxes and social benefits.<br />
Most of the problem is the erosion of wage and salary income. </p>
<p>The causes are multiple [see Bluestone, "<a href="/print/V6/20/bluestone-b.html">The<br />
Inequality Express</a>," <i>TAP</i>, Winter 1995], but there are proven<br />
methods for cushioning the impact by raising incomes at the bottom and providing<br />
"wage insurance" for those at risk. Chief among these are the minimum<br />
wage and the earned income tax credit (EITC). The two fit together like jigsaw<br />
puzzle pieces. Each has an inherent weaknessbut the weakness in one is<br />
precisely the strength of the other. The problem is that the real value of the<br />
minimum wage is shrinking and the EITC is under attack. </p>
<p></p><hr /><br /><h3>THE FATE OF AMERICAN INCOMES</h3>
<p>Between the end of World War II and 1973, inflation-adjusted average weekly<br />
wages for non-supervisory employees rose by 60 percent, while real median family<br />
income, boosted by the growth in female labor force participation, literally<br />
doubled. Those in the bottom quintile of the income distribution saw their<br />
incomes rise by no less than those in the top. Such a benign climate ended in<br />
1973. Since then, average weekly wages have fallen by nearly 20 percent and<br />
median family income has not improved beyond the level achieved more than two<br />
decades ago. </p>
<p>According to Gary Burtless of the Brookings Institution, between 1973 and<br />
1993 the average income available to the bottom quintile fell by nearly 23<br />
percentfrom $17,601 to $13,596 per year for a family of three (in 1993<br />
dollars). A small portion of this decline was due to cutbacks in means-tested<br />
transfer programs such as welfare. A bit more was due to reductions in the value<br />
of private pensions. Yet the largest source of decline, amounting to 60 percent<br />
of the total income loss, was a reduction in the earnings of either the head of<br />
household or other household members. </p>
<p>As incomes of the bottom fifth of the population have fallen, poverty has<br />
naturally increased. As a nation, we made sizable inroads against poverty during<br />
the 1960s and early 1970s due to strong sustained growth in the economy, low<br />
unemployment and high labor bargaining power, increases in transfer programs,<br />
and the billions of dollars spent as part of the War on Poverty. Between 1960<br />
and 1973, the proportion of individuals living below the official poverty line<br />
fell by half, from 22.2 percent to 11.1 percent. But then the war stopped. By<br />
1993, the poverty rate was back up to 15.1 percent. </p>
<p>The newly poor, however, were not the same as the old poor. In 1970, 40<br />
percent of the poor were children and 19 percent were elderly. Thanks to the<br />
expansion in Social Security and Medicare, only 10 percent of the poor today are<br />
age 65 or older. The proportion of the poor who are children has also declined<br />
slightly, to 38 percent, because of declining birth rates. As a result,<br />
nonelderly adults comprise an absolute majority (52 percent) of all poor persons<br />
in the nation. This may be the first time since the era of Charles Dickens that<br />
the majority of the poor are not the young, the old, or the infirm, but prime,<br />
working-age adults. While conservatives may target a breakdown in family values<br />
as poverty's chief culprit, the data suggest otherwise. The main cause is<br />
falling wages and diminished employment opportunity. </p>
<p><font size="+3">T</font>hese trends will only intensify if "welfare<br />
reform" compels single mothers to seek paid employment. Thirty years ago,<br />
single-parent families headed by women made up less than one-fifth of all<br />
impoverished households in the country. Today they make up nearly one-half (47<br />
percent) and therefore the welfare-to-work strategy, in either its more gentle<br />
White House guise or its harsher congressional form, will impact millions of the<br />
lowest-income families in the nation. </p>
<p>If we push welfare mothers into paid employment without raising wages and<br />
benefits, the main effect will be to increase the already large proportion of<br />
the poor who currently work for their poverty. In 1989, three out of four<br />
poverty households had one or more workers in them while nearly 70 percent of<br />
all poor prime-age adultsthose between the ages of 25 and 54did some<br />
paid work during the year. Three out of every ten of them worked year-round,<br />
full timegiving the lie to Thomas Carlyle's remark a century ago that "work<br />
is the grand cure of all the maladies and miseries that ever beset mankind." </p>
<p>Families permanently trapped on the lowest rungs of the income ladder are<br />
not the only ones in economic trouble. Job and income instability is becoming "democratized"<br />
as a direct consequence of ongoing corporate restructuring that targets<br />
professional and white-collar workers for layoffs along with the traditional<br />
blue-collar rank and file. Economist Stephen Rose, currently at the U.S.<br />
Department of Labor, estimates for the 1970s that 67 percent of men had a "strong<br />
attachment" to their firm. They made at most one change in employer during<br />
the decade. Such strong company affiliation dropped to only 52 percent in the<br />
1980s. Weak attachmentchanging employers at least four times in a decadedoubled<br />
from 12 percent to 24 percent. Rose finds that such high employment turnoverpresumably<br />
dominated by layoffs rather than quitsleads to disrupted career paths, in<br />
turn resulting in lower average earnings. For a not insignificant number of<br />
families, the loss of a job plunges a family at least temporarily into the ranks<br />
of the poor or near poor. </p>
<p>All of these statistics suggest that we have built poverty into the very<br />
fabric of the American labor market. In such an economic environment, there is a<br />
critical role for public policy designed to boost wages and improve income<br />
security. Here is where raising the minimum wage and protecting the EITC come<br />
into play. </p>
<p></p><hr /><br /><h3>FIGHTING WAGE POVERTY </h3>
<p>The federal minimum wage dates to the Fair Labor Standards Act of 1938. In<br />
his second inaugural address in 1937 preceding the introduction of this<br />
legislation, Franklin Roosevelt called on Congress to help the one-third of<br />
Americans who were "ill-housed, ill-clad, and ill-nourished." The<br />
original minimum wage of 25 cents per hour helped, but it was only sufficient to<br />
raise a worker's earnings to the point where it would, using today's standards,<br />
support a family of three at 46 percent of the poverty line. </p>
<p>After World War II, as real gross domestic product (GDP) increased, the<br />
federal government improved the minimum wage regularly to make sure the poorest<br />
workers would share in the general prosperity. Between 1950 and 1991, Congress<br />
raised the wage floor 14 times. At its peak in 1968, the $1.40 per-hour minimum<br />
representedon a full-year, full-time basis118 percent of the poverty<br />
wage for a family of three. </p>
<p>In the 1970s, however, inflation began to outrun the minimum wage. Despite<br />
periodic increases in the statutory rate, none was large enough to maintain the<br />
minimum's real value. By 1995, a full-time worker on a minimum-wage job could<br />
earn only 72 percent of the income needs of a three-person family living at the<br />
poverty line. [See "<a href="#table">A Minimal Wage</a>," below.]<br />
According to New York University economist Edward Wolff, if the minimum wage had<br />
kept up with inflation since 1965, it would exceed the current earnings of fully<br />
30 percent of American workers. Nearly one out of three American workers is<br />
presently toiling for an inflation-adjusted wage that would have violated the<br />
Fair Labor Standards Act 30 years ago. </p>
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<p>Real wages have fallen so far during the past 20 years that, according to<br />
the Economic Policy Institute (EPI), raising the minimum wage to just $5.15 an<br />
hour from the present $4.25as President Clinton has recommended to<br />
Congresswould directly affect more than 12 million workers who now earn<br />
between the current minimum and the proposed one. In addition, because firms try<br />
to maintain wage differentials between groups of workers, workers just above the<br />
minimum typically benefit as well. EPI estimates that nearly nine million<br />
additional workers currently earning between $5.15 and $6.14 an hour will see<br />
their wages rise by an average of 10 percent. Together, then, more than 21<br />
million workersone out of six in the U.S. workforcewould see their<br />
wages improve over the next two years if the Clinton wage floor were adopted. </p>
<p>Contrary to propaganda by employer groups, almost three-fourths of these<br />
workers are adults; only 25.6 percent are teenagers. Nearly three-fifths are<br />
women, whose families are disproportionately in poverty. Over half of all<br />
workers who would benefit from raising the minimum wage to $5.15 an hour are<br />
found in the poorest 20 percent of all families. Well over two-thirds work in<br />
retail trade and services; only 10 percent work in manufacturing where the<br />
threat of low-wage international competition may increase if the minimum is<br />
raised. </p>
<p><font size="+3">A</font>s good public policy, the minimum wage has at least<br />
four things going for it. First and foremost, it is a way to increase workers'<br />
earnings without placing any burden on the taxpayer. It does not add a penny to<br />
the federal deficit. If anything, it decreases the deficit by boosting income<br />
tax revenue and reducing welfare payments. Second, it provides increased income<br />
to workers who do not qualify for government transfer programs or tax credits.<br />
Third, it is an incentive to work in the "above ground" economy rather<br />
than in the "underground" economy where wages are often higher than<br />
the federal minimum. Fourth, and by no means least, an increased minimum wage<br />
may well lead to higher productivity in the economy. At current wage levels,<br />
there is little incentive for low-wage employers to introduce new technology or<br />
find other ways to boost the output of their workforce. Required to pay a<br />
higher wage, firms would have an incentive to find ways to use their workers<br />
more effectively. </p>
<p>Despite these advantages, economists' support for mandated minimums has been<br />
tepid at best. The minimum wage is viewed as a double-edged sword, boosting<br />
wages on the one hand, but forcing employers to reduce employment on the other.<br />
Teenagers presumably bear the brunt of minimum-wage-induced job loss, being the<br />
least skilled and most expendable in the labor pool. Until recently, empirical<br />
research appeared to confirm the economists' concern. A battery of studies<br />
during the 1970s and early 1980s concluded that a 10 percent increase in the<br />
federal wage floor typically leads to a 1 to 3 percent cut in teenage<br />
employment. Among adults, the effect was found to be substantially weaker, but<br />
statistically significant, in the range of 0.3 to 0.7 percent. </p>
<p>David Card and Alan Krueger, both economics professors at Princeton<br />
University, have carried out meticulous "micro" studies that suggest<br />
that in the real world of fast food restaurants and other low-wage employers,<br />
modest increases in minimum wages have no negative impact on employment levels.<br />
Their results have been attacked by some traditional economists, but none of<br />
Card and Krueger's detractors have fundamentally undermined the findings. [See<br />
John Schmitt, "Cooked to Order," page 82.] Evidently, there is<br />
sufficient slack in the relationship between wages and employment levelsespecially<br />
in industries not subject to international low-wage competitionthat<br />
employers either absorb the higher minimum wage in slightly lower profits or<br />
find productivity improvements to justify the higher wages, rather than<br />
compensate by laying workers off. </p>
<p>Yet even if the new Princeton studies are ignored and we fully accept the<br />
critics' estimates of an unemployment effect, it would not constitute much of a<br />
case for rejecting a higher minimum wage. Virtually every low-wage worker<br />
benefits from a higher minimum wage even if there is an aggregate labor<br />
displacement effect. Because of the high job turnover rate among teenagers in<br />
particular, and low-wage workers in general, no single individual bears the full<br />
burden of unemployment. A recent study of working welfare mothers by the<br />
Institute for Women's Policy Research, for example, shows that they change jobs<br />
on average every 14 months. Those who benefit from a boost in the federal wage<br />
floor share both the higher wages and a portion of any induced unemployment. In<br />
the case of the Clinton proposal, the typical working teenager will see his wage<br />
go up by 21 percent andif there is job displacement as severe as early<br />
estimates make it out to bea 6 percent decline in annual hours worked. One<br />
presumes few teenage beneficiaries would vote against a wage-job displacement<br />
deal that includes a 15 percent annual income increase in return for 6 percent<br /><i>less</i> work! For adults affected by such an increase in the minimum wage,<br />
the 21 percent wage increase is offset by no more than a loss of 1.5 percent in<br />
annual hours workedhardly a dent in their improved economic condition.<br />
This should vindicate the minimum wage, even without the Card and Krueger<br />
results. </p>
<p>But there is another criticism that makes the minimum wage less than ideal<br />
as an antipoverty remedy. It concerns what economists call "target<br />
efficiency." Only a small proportion of the poor would directly benefit<br />
from increasing the wage floor, despite the fact that nearly 75 percent of poor<br />
households have someone who works. According to estimates by Richard Burkhauser<br />
and Kenneth Couch of Syracuse University and their colleague, Andrew Glenn of<br />
Vanderbilt, only 16.9 percent of the workers in poor households in 1991 were in<br />
jobs paying below the proposed boost in the statutory minimum to $5.15 an hour.<br />
Except for the possible indirect benefits noted above via maintenance of wage<br />
differentials, the other 83 percent of working-poor households would not be<br />
helped since their working members already earn wages above this level. Even so,<br />
according to the EPI study mentioned above, 40 percent of the gains from the<br />
proposed Clinton wage hike would go to the poorest 20 percent of working<br />
familiesthose with annual incomes less than $22,000 in 1993. These are<br />
clearly deserving families, even if only about half this number are below the<br />
official poverty line. </p>
<p>However, the federal wage floor would have to be $6.06 per hour for a<br />
full-time worker to earn enough to raise a family of three above the poverty<br />
line. Hence, most workers in poor families fall into a "dead man's zone."<br />
The Clinton minimum wage is below what they are currently making, but their pay<br />
is not sufficient even on a full-time, full-year basis to catapult their<br />
families out of poverty. </p>
<p></p><hr /><br /><h3>UNTAXING THE POOR</h3>
<p>To assist the most disadvantaged of the working poor, an even<br />
better-targeted program is neededthe earned income tax credit. First<br />
enacted in 1975, the EITC is a refundable tax credit aimed directly at helping<br />
working-poor families with children. Its original intent was to offset a portion<br />
of the payroll tax liability of low-income families in order to reduce the<br />
regressivity of federal taxes. Being refundable, it has aspects of a "negative<br />
income tax." If the credit due a family is greater than its federal tax<br />
liability, the IRS remits the balance to the family. </p>
<p>The way the EITC operates is quite simple. For example, a working family<br />
with one earner and two or more children receives a 40 cent credit for every<br />
dollar earned up to $8,900. Hence, the EITC provides a maximum benefit of $3,560<br />
(0.4 times $8,900). When that family files its Form 1040 in April, total tax<br />
liability is reduced by this amount. A check will be sent to the family if the<br />
credit exceeds what it owes. A family is eligible for the maximum credit until<br />
its total earnings from work reach $11,620. After that, the credit declines by<br />
21 cents per dollar of earnings, and vanishes altogether only when a family's<br />
earnings exceed $28,524. For working families with just one child, the maximum<br />
credit is $2,156 and the credit "vanishes" at $25,120. </p>
<p>Since the EITC rewards work and not welfare, does not impose mandates on<br />
employers, and involves little red tape, even President Reagan was a great fan.<br />
In expanding it in 1985, he called it "the best anti-poverty, the best<br />
pro-family, the best job creation measure to come out of the Congress." At<br />
the time, Senator Bob Dole and Representative Dick Armey chimed in with warm<br />
endorsements. </p>
<p>The EITC's greatest advantage from the perspective of battling poverty is<br />
precisely the minimum wage's weaknessits target efficiency. According to<br />
Burkhauser and his colleagues, more than 46 percent of the program's total tax<br />
credit goes to families who are living under the official poverty line while 63<br />
percent goes to families with incomes no more than 1.5 times this low income<br />
standard. Only about 15 percent goes to families with incomes 3 times the<br />
poverty line or greaterfamilies who have relatively higher incomes but<br />
receive only a portion of their income from wages. The U.S. Treasury estimates<br />
that in 1996 more than two-thirds of the credit will go to families with income<br />
under $20,000. Hence it affects millions of families in the "dead man's<br />
zone"those not helped by the minimum wage. For a family of four with<br />
one earner making $7 an hour and working 1,500 hours a year, the EITC fills<br />
nearly 80 percent of its "poverty gap," the difference between<br />
after-tax earnings and the poverty line. </p>
<p>The EITC has still another great advantage often overlooked by both its<br />
supporters and its detractors. It is a form of "family wage insurance"<br />
in an era of job instability and earnings insecurity. Stephen Rose has estimated<br />
that fully 39 percent of families would be eligible for the EITC at least one<br />
year in ten. In any one year, about one in six families is eligible for the tax<br />
credit, but over a decade, nearly two out of five families with children will<br />
have a year or more in which their wage income declines sufficiently for them to<br />
be eligible for the EITC. The EITC proves particularly useful for younger<br />
families, those hardest hit by the nation's falling median-wage rate. By the end<br />
of any given decade, more than half of families headed by individuals who are no<br />
more than 35 years old benefit from the credit. The EITC therefore serves two<br />
important functions. It is life support for the permanently low-wage worker; it<br />
is earnings insurance for the middle class. </p>
<p></p><hr size="5" /><br /><h4>Building a Living Wage</h4>
<p><b>How raising the minimum wage and keeping the EITC intact helps working<br />
families put food on the table:</b> </p>
<p></p><table border="3" align="center" cellpadding="2" cellspacing="2"><br /><tr><th> </th>
<p> </p><th>Gross</th>
<p> </p><th>After FICA</th>
<th>EITC</th>
<th>Total </th><br /></tr><br /><tr><br /><td>Family 1<br /><br />(one adult earner, two children)</td>
<td>Earnings</td>
<td>Witholding</td>
<td>Value</td>
<p> Earnings<br /></p></tr><p> </p><tr><br /><td>Current minimum wage ($4.25)/no EITC</td>
<td>$6,375</td>
<td>$5,887</td>
<td>$0</td>
<td>$5,887</td><br /></tr><br /><tr><br /><td>Current minimum wage ($4.25)/EITC</td>
<td>$6,375</td>
<td>$5,887</td>
<td>$2,550</td>
<td>$8,437</td><br /></tr><br /><tr><br /><td>Clinton minimum wage ($5.15)/EITC</td>
<td>$7,609</td>
<td>$7,027</td>
<td>$3,044</td>
<td>$10,071</td><br /></tr><br /><tr><p> </p></tr><br /><tr><br /><td>Family 2<br />(two adult earners, two children)</td><br /></tr><br /><tr><br /><td>Current minimum wage ($4.25)/no EITC</td>
<td>$12,750</td>
<td>$11,775</td>
<td>$0</td>
<td>$11,775</td><br /></tr><br /><tr><br /><td>Current minimum wage ($4.25)/EITC</td>
<td>$12,750</td>
<td>$11,775</td>
<td>$3,323</td>
<td>$15,098</td><br /></tr><br /><tr><br /><td>Clinton minimum wage ($5.15)/EITC</td>
<td>$15,218</td>
<td>$14,054</td>
<td>$2,805</td>
<td>$16,859</td><br /></tr><br /></table><p>Earnings are for persons working at minimum wage 30 hours<br />
per week, 50 weeks per year. These simulations assume a 1.5 percent reduction<br />
in hours worked as a result of raising the minimum wage from $4.25 to $5.15 per<br />
hour. </p>
<p></p><hr size="5" /><p><font size="+3">A</font>s impressive as these benefits may be, the EITC is<br />
no cure-all and has a number of serious weaknesses. For one thing, it is of no<br />
help to a large segment of the poorunrelated individualsand its aid<br />
to childless couples is nearly inconsequential, amounting to a maximum of $324<br />
per year. </p>
<p>An even greater disadvantage, at least politically, is that the EITC is<br />
expensive from the perspective of the taxpayer. This year, the EITC will cost<br />
the federal treasury more than $25 billion and its annual cost is projected to<br />
rise to $30 billion by the year 2000 in order to keep up with inflation and<br />
population growth. It is one of the reasons why, in their zeal to balance the<br />
budget by 2002, the Republicans have targeted EITC for significant cuts despite<br />
their previous enthusiastic support for it. </p>
<p>A third problem is that the EITC is considered subject to abuse. Until<br />
administrative changes were made in the program last year, the so-called "error<br />
rate" for the credit was found to be extremely high relative to other IRS<br />
provisions. Some families were receiving the credit when they were ineligible;<br />
others were receiving more credit than they were legally permitted; still others<br />
were receiving less. Since there is benefit to be gained from overstating one's<br />
income at very low earnings in order to move up the EITC schedule and benefit<br />
from understating income at higher earnings levels to retain the maximum tax<br />
credit, there will always be some enforcement issue needing attentioneven<br />
if it presents the IRS with nowhere near the headache of policing tax compliance<br />
among the rich. </p>
<p>A more serious problem is related to what might be called the "Speenhamland"<br />
effect. The EITC not only subsidizes workers, it subsidizes employers. It<br />
permits employers to keep wages low while relying on the federal government to<br />
help workers make up the difference between substandard earnings and something<br />
approaching a living wage. The British learned this lesson 200 years ago when<br />
they imposed their equivalent of the EITC in the form of the infamous<br />
Speenhamland provisions. Introduced during the first decades of the industrial<br />
revolution, Speenhamland subsidized factory wages to keep workers from starving<br />
to death. Quickly, employers realized they could drive down wages and let the<br />
government pick up the tab for their employees. By the early 1800s, Speenhamland<br />
was bankrupting local treasuries and the laws were repealed. There is a lesson<br />
here. Certainly in an era of "privatization," one would think that "privatizing"<br />
wages should be high on the agenda. The EITC socializes them. </p>
<p>For this reason, the credit also has a potential adverse effect on<br />
productivity. A wage subsidy tends to reduce the incentive for investment in new<br />
technology and capital. If an employer can obtain labor for 80 cents on the<br />
dollar, why invest in labor-saving technology? </p>
<p></p><hr /><br /><h3>FITTING THE JIGSAW PIECES TOGETHER</h3>
<p>The conclusion should be obvious. An anti-poverty program aimed at low<br />
earnings must include both an increase in the minimum wage and retention (if not<br />
continued expansion) of the EITC. The disadvantages of the one are offset by the<br />
advantages of the other. </p>
<p>The minimum wage has poor target efficiency; the EITC's efficiency is much<br />
superior. The minimum wage does not generate jobs and may displace some; the tax<br />
credit has no job displacement effect and might encourage some firms to expand<br />
employment. On the other hand, the minimum wage is much superior to the EITC<br />
when it comes to taxpayer cost, aiding unrelated individuals and childless<br />
families, and countering the Speen hamland and adverse productivity effects.<br />
Indeed, periodic increases in the minimum wage will over the long term actually<br />
reduce taxpayer liability under the EITC. Whenever the federally mandated wage<br />
floor boosts a family's earnings above $11,620, the credit is reduced by 21<br />
cents on the dollar. Combined, then, the minimum wage and the EITC give us the<br />
best of both worldstarget efficiency for attacking wage poverty at<br />
reasonable public cost. </p>
<p>Clearly, the combination of minimum-wage regulations and the EITC makes for<br />
good antipoverty policy, especially in an era when the majority of poor people<br />
are working-age adults and job insecurity is on the rise. The chart ["Building<br />
a Living Wage," page 45] provides estimates of how much an increase in the<br />
minimum wage to $5.15 an hour in tandem with the current EITC would actually<br />
help low-income families. Take "Family 1" with two children and one<br />
adult earner working 1,500 hours per year at the current $4.25 minimum wage. At<br />
the current wage floor, this family would have a total annual income of just<br />
$5,887 (after subtracting its share of Social Security taxes) excluding its<br />
EITC. The EITC alone boosts this family's income to $8,437. Lifting the minimum<br />
wage to $5.15 an hour will raise after-tax earnings to $7,027 and total income<br />
to $10,071even if we take into account the highest possible job<br />
displacement effect due to the boost in the minimum wage. Overall, this family's<br />
income is raised by 71 percent as a result of the higher minimum and the tax<br />
credit. </p>
<p>Depending on the wage rates currently earned, the number of annual hours<br />
worked, and the number of earners in the family, the gain from the minimum<br />
wage-EITC combo varies substantially. But the examples provided in the chart<br />
indicate that few antipoverty programs could be more effective. </p>
<p>That Republicans refuse to increase the minimum wageand a good number<br />
have suggested jettisoning it altogethershows neither compassion for the<br />
working poor nor good economic sense. That a number of the currently fashionable<br />
"flat tax" proposals eliminate the EITC adds substantially to the<br />
enormous regressivity of these measures. </p>
<p>This is not to say, by a longshot, that reliance on federal wage standards<br />
and tax credits is the ultimate answer to low wages and poverty. The social<br />
policy jigsaw puzzle has many more pieces that must be fitted together to boost<br />
employment opportunity, improve living standards, and reduce income insecurity.<br />
Fashioning a full-employment macro policy is part of the overall puzzle, as are<br />
education and training programs, community economic development strategies,<br />
increased unionization, and fair trade. But in this political era of trying to<br />
hold on to some of the gains we have made in the past, the battle for improved<br />
minimum-wage regulation and maintenance of the EITC are well worth joining with<br />
a lot more gusto than we have seen from the White House this past year. </p>
<p></p><hr /><br /><h4>FOR FURTHER READING</h4><br /><ul><li>David Card and Alan Krueger, Myth and Measurement: The New Economics<br />
of the Nimimum Wage (Princeton University Press, 1995).</li><br /><li>Lawrence Mishel, Jared Bernstein and Edith Raselle, "Who Gains with a Higher Minimum Wage,"<br />
Economic Policy Institute, 1995.</li><br /><li>Stephen J. Rose, "Long Term Eligibility for the Earned Income Tax<br />
Credit," Research Report #95-05, National Commission for Employment Policy,<br />
1995.</li></ul><p><br /><br /><!-- dhandler for print articles --></p></div></div></div>Wed, 19 Dec 2001 19:15:55 +0000141252 at http://prospect.orgBarry BluestoneModels of Labor Law Reformhttp://prospect.org/article/models-labor-law-reform
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</div></div></div>Wed, 19 Dec 2001 19:14:25 +0000141449 at http://prospect.orgBarry BluestoneWhy We Can Grow Fasterhttp://prospect.org/article/why-we-can-grow-faster
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p><font class="nonprinting"></font></p>
<p>
<font size="+2">F</font>rom the early-nineteenth-century introduction<br />
of steam power through the dawning of the age of the microchip<br />
in the post-World War II era, real economic growth in America<br />
averaged 3.8 percent per year. That meant economic output doubled<br />
roughly every 19 years. Then after the 1970s, growth collapsed.<br />
During the 1980s, growth averaged just 2.7 percent per year and<br />
since 1989 only about 2 percent. At that rate, it will take nearly<br />
36 years for gross domestic product (GDP) to double again.</p>
<p>
Despite this performance at well below<br />
historical trend rates, many mainstream economists and the journalists<br />
who follow them have concluded that the new lower growth rate<br />
is inevitable and more or less permanent. Economist Paul Krugman<br />
suggests that we now live in an "age of diminished expectations"<br />
and we had better get used to it. The Council of Economic Advisers<br />
(CEA) forecasts 2.3 percent growth through 2002. Generally,<br />
both the Federal Reserve Board and the Congressional Budget Office<br />
agree with this assessment. Popularizing this theme, Jeffrey Madrick's<br />
1995 book concluded that we had reached <i>The End of Affluence</i>.</p>
<p>
This pessimism about future growth rates is predicated<br />
on unassailable arithmetic but, as we shall see, questionable<br />
assumptions. Mathematically, the rate of economic growth cannot<br />
exceed the rate of labor force growth plus the rate of growth<br />
in labor productivitythat is, total hours worked times output<br />
per hour worked. This tautology sets the speed limit on how fast<br />
an economy can grow; if we exceed the economy's growth capacity,<br />
we will reap only inflation.</p>
<p>
Typical forecasts of economic growththe CEA's, for<br />
examplepredict that the labor force will grow at about 1.2 percent<br />
per year at least through 2002 while productivity growth will<br />
creep along at about 1.2 percent a year as well. Adding these<br />
together (and subtracting a tenth of a point for the expected<br />
slowdown in growth due to smaller government outlays and a smaller<br />
farm sector) yields the "official" 2.3 percent growth<br />
rate forecast that pretty much everyone has come to accept as<br />
the most likely future scenario. Optimists predict that with a<br />
little luck we could push it to 2.5 percent. The bridge to the<br />
twenty-first century apparently is being built without a high-speed<br />
lane.</p>
<p>
Small differences in growth rates over a sustained<br />
period yield huge differences in our standard of living. Whether<br />
the economy can grow at 2.3 percent or, say, 3 percent a year<br />
may seem a quibble, but that annual seven-tenths of a percent<br />
is hardly trivial. Between now and 2007, the total difference<br />
between these two rates is $3.1 <i>trillion </i>worth of GDPan<br />
average of more than $300 billion a year. That $3.1 trillion could<br />
solve the Social Security "crisis," deal with the federal<br />
deficit, and represent a large down payment on rebuilding the<br />
cities and cleaning up the environmentnot to mention what it<br />
could mean for employment, wages, and family incomes. Misreading<br />
the economy's speed limit has its costs. This is particularly<br />
true if investors temper their own expectations of growth based<br />
on "official" forecasts and limit their investments<br />
in new technology and in new plants and equipment believing that<br />
any larger investment will simply leave their capital stock idle<br />
in the face of slow-growing demand. </p>
<p>
It may seem prudent to "diminish our expectations,"<br />
but there is the distinct danger that limiting our expectations<br />
may become a self-fulfilling prophecy. In this article, we suggest<br />
why. Instead of forecasting growth rates, the Federal Reserve<br />
Board, the White House, the Congressional Budget Office, and the<br />
economists on whom these bodies rely for advice may be inadvertently<br />
setting growth rates. It would surely add credibility to the economics<br />
profession if its slow-growth forecast turned out to be accuratebut<br />
it would not be very good for everyone else!<br /></p>
<hr size="1" /><center><br /><a href="/subscribe/"><img src="/tapads/mini_subscribe.gif" border="0" alt="Subscribe to The American Prospect" /></a>
<p></p></center><br /><hr size="1" /><p></p><h3>WHO WORKS, AND WHY</h3>
<p>
We think the economy can grow fasterprovided<br />
the growth prospects are not sabotaged. There is considerable<br />
evidence that the mainstream forecasts of both <i>labor supply<br /></i>and <i>output per worker </i>are too pessimistic, given emerging<br />
underlying forces in the economy. The supply of labor and the<br />
potential growth of productivity are both more elastic than the<br />
standard view admits. Moreover, the conventional wisdom relies<br />
too heavily on an outmoded understanding of how technology and<br />
growth are connected.</p>
<p>
Consider labor supply. We may not like<br />
all of the social consequences of an increasingly "overworked"<br />
America, but more Americans are working, and they are working<br />
longer hours. We are finding that the labor force is not tapped<br />
out, but is ready to work more when jobs are there. The economist's<br />
old homily, Say's Law, which says that "supply creates its<br />
own demand," has been stood on its head. Now, increased demand<br />
for labor coaxes out a new source of labor supply that can contribute<br />
to faster growth. This ups the economy's speed limit a notch.</p>
<p>
The increased labor supply shows up<br />
in two forms. One is an increase in the labor force participation<br />
ratethe fraction of the population that works or seeks work.<br />
[See "The End of Unemployment?".] After growing<br />
for decades, the labor force participation rate flattened out<br />
in the late 1980s and early 1990s. Economists and demographers<br />
took this to mean that with women's participation reaching a peak<br />
and older workers retiring earlier, the overall labor force participation<br />
rate had reached a plateau. Between 1989 and 1994, the rate was<br />
essentially flat at 66.6 percent. But lo and behold, since 1994<br />
the rate has been on the rise again. By March of this year, the<br />
rate was up to 67.3 percentadding 1.4 million additional workers<br />
to the labor pool. </p>
<p>
This resurgence in part reflects an<br />
apparent end to four decades of decline in labor force participation<br />
rates among workers over age 55. With improvements in health and<br />
changes in law that permit older workers to keep more of their<br />
Social Security income while continuing to work, more older Americans<br />
are choosing to remain employed in either full-time or part-time<br />
jobs. Moreover, it appears that younger men who had "disappeared"<br />
from the official labor forceas many as six million according<br />
to Lester Thurow ["<a href="/print/V7/25/thurow-l.html" target="_self">The Crusade That's Killing Prosperity</a>,"<br /><i>TAP</i>, March-April 1996]are beginning to reenter in response<br />
to better job opportunities. In other words, faster growth and<br />
more job opportunities coax out more workers; labor supply is<br />
not fixed by demographics. Extra labor supply from these sources<br />
will offset the projected decline in 25- to 34-year-olds over<br />
the next decade, the legacy of the baby bust generation. Thus,<br />
assuming adequate labor demandsomething that macroeconomic policies<br />
at home and coordinated negotiations among countries can promotethe<br />
"graying of America" need not mean a decline in the<br />
growth rate in labor force participation.</p>
<p>
Even more important is the growth in<br />
hours worked per workera factor that goes undetected in the official<br />
labor force participation and employment statistics, since all<br />
workers who work at least one hour a week are simply counted as<br />
employed. From 1967 through 1982, the average annual hours worked<br />
by prime-age workers (age 25-54) declined from about 1,975 to<br />
about 1,840. This was primarily the result of women entering the<br />
labor force in part-time positions. Since 1982, however, the trend<br />
has reversed, so that by 1995 the average work year was back above<br />
the 1967 level. Just since 1991, with the expansion of the economy,<br />
average hours worked per employee have increased by nearly 3 percent.<br />
That is the equivalent of adding 3 percent more workers to the<br />
American labor force if the average work effort had remained unchanged<br />
at its 1991 level.</p>
<p>
That we have been able to drive the<br />
unemployment rate down below 5 percent without igniting wage-led<br />
inflation is testimony to the fact that there is a good deal of<br />
labor supply in the pipeline when labor demand exists to employ<br />
it. Because of its construction, the official unemployment rate<br />
simply fails to capture it. Of course, at some point the typical<br />
workweek and the fraction of the population that works reaches<br />
a natural limit. But given healthier senior citizens, women's<br />
equal participation in the labor force, welfare-to-work efforts,<br />
and training programs for the conventionally unemployable, labor<br />
supply should grow faster than population for some time.</p>
<p>
</p><hr noshade="noshade" size="2" /><h3>A PRODUCTIVITY RENAISSANCE</h3>
<p>
The other component of growthlabor<br />
productivityhas been the chief culprit in the growth slowdown<br />
since the early 1970s. From 1870 through 1973, productivity increased<br />
by an average rate of 2.4 percent per year. In the immediate post-World<br />
War II era, productivity was absolutely boominggrowing more than<br />
3 percent a year. After 1973, productivity growth totally collapsed,<br />
for reasons that most economists consider a mystery. (The OPEC<br />
oil shock, the demise of the Bretton Woods system, and the high-interest-rate<br />
austerity that followed are considered possible suspects.) For<br />
a quarter century, productivity has been growing at barely 1 percent<br />
a yeara pace even worse than that of the Great Depression. The<br />
official projections for economic growth are based on a continuation<br />
of this dismal record.</p>
<p>
Yet there is good reason to believe<br />
that we are on the verge of a productivity renaissance. This is<br />
already evident in the manufacturing sector, where productivity<br />
growth rates are back up to the levels enjoyed during the postwar<br />
glory days. The recent drag on productivity has all been in the<br />
service sector of the economy, where most of the growth in the<br />
economy is now centered. But even here there is now evidence of<br />
a turnaround. From 1989 through 1995, productivity growth for<br />
the entire nonfarm business sector of the economy averaged only<br />
0.9 percent per year. Since then, the rate has averaged 1.3 percenta<br />
sizeable improvement. Longer-term historical data suggest that<br />
the productivity slump bottomed out in the late 1980s.</p>
<p>
<font size="+2">M</font>ore<br />
important perhaps than the actual recent numbers is the growing<br />
awareness that overall productivity growth has a history of long<br />
cycles based on the introduction of new technologies. This helps<br />
to explain the productivity paradox of the information revolution.<br />
The work of such economic historians as Paul David, Nathan Rosenberg,<br />
Luc Soete, and Chris Freeman, shows that in <i>every </i>new technological<br />
erabe it led by the introduction of water power, steam power,<br />
or electricitythere has been a lag before productivity surged.<br />
The decline in productivity growth rates often lasts two or three<br />
decades, the time it has taken for each new technology to be "debugged"<br />
and diffused. </p>
<p>
The computer revolution very likely<br />
follows the pattern. If so, we likely have lived through the downside<br />
of a technological transformation and we are just about to receive<br />
its benefits. For nearly two decades now, we have seen the rapid<br />
introduction of new hardware and software as the technology revolution<br />
moves toward greater maturity. Every time we have begun to become<br />
proficient with new technology, newer hardware and software promises<br />
even greater productivity. But it takes time to learn, and during<br />
this time productivity growth is flat or even declines. For those<br />
who have kept up with the innovations in computer operating systems,<br />
think of the time and effort "wasted" in moving from<br />
DOS to Windows 3.1 to Windows 95. Just as you were moving up the<br />
"learning curve" with one operating system, another<br />
one came along and you had to pause while you moved onto the next<br />
learning curve. Over the long run, your productivity improvedor<br />
will improvebut the process is filled with fits and starts.</p>
<p></p><table align="RIGHT" width="150" border="0" cellspacing="5" cellpadding="10" bgcolor="#FFFFEE"><br /><tr><br /><td><br /><font size="-1"><br />
What is our true position on economic growth and employment?<br />
Are we really on a cliff by the sea,<br />
poised perilously above the waves and the rocks? Or are we in<br />
fact down by the beach, on a gentle slope of soft and agreeable<br />
sand? What are the risks of another advance injury and death,<br />
or a little wetting of the feet? And if we do get our feet wet,<br />
what will it take to get them dry again?<br /><br />
See "<a href="galbraith-j.html" target="_top">Test the Limit</a>," by James K. Galbraith<br /></font>
<p></p></td><br /></tr><br /></table><p>Moreoverand here is where mainstream<br />
theory really misses the boatPaul Romer, Richard Nelson, and<br />
others have shown persuasively that the productivity dividend<br />
from the introduction of any new technological paradigm is fully<br />
realized only when all of its complements are in place. The hardware<br />
has to work with the software. The skills of the workforce need<br />
to be upgraded to utilize it. Old managerial routines that stand<br />
in the way have to be replaced. This all takes timeand now appears<br />
to be well along. A growing proportion of the workforce is now<br />
computer literate. Investments in training are beginning to pay<br />
off as more and more workers report that they are using computers<br />
and related equipment on the job. The human process of learning<br />
by doing is now increasingly routinized.</p>
<p>
We have already seen this process flourish<br />
in the manufacturing sector. With greater emphasis on user-friendliness,<br />
and with the accelerated diffusion of the new easier-to-use technologies<br />
in the service sector as well, the productivity promise of the<br />
computer and related information-processing equipment is now on<br />
the close horizon. This, we believe, helps to explain the bottoming<br />
out of the productivity slump and heralds strong positive growth<br />
in the near future.</p>
<p>
</p><hr noshade="noshade" size="2" /><h3>FEEDBACK LOOPS AND SELF-FULFILLING PROPHESIES</h3>
<p>
Our estimates based on recent trends<br />
suggest that we can claim another 0.3 to 0.4 percent growth annually<br />
in the labor force over the next decade and another 0.3 to 0.4<br />
percent growth per year in productivity. This means that there<br />
is clearly room for the economy to meet a 3 percent annual growth<br />
targetthe amount necessary to garner that $3.1trillion GDP bonus.</p>
<p>
But we surely will fall short of that<br />
goal if public and private policies sabotage growth. Here there<br />
is much to <i>unlearn </i>from history. Though the Federal Reserve<br />
Board has lately allowed unemployment rates to slip below what<br />
it once considered a natural floor, there remains a powerful monetary<br />
policy bias against faster growth [see "<a href="galbraith-j.html" target="_top">Test the Limit</a>,"<br />
James K. Galbraith].</p>
<p>
<font size="+2">I</font>n<br />
the stagflation of the 1970s, many economists became convinced<br />
that the natural rate of unemployment was an immutable law. But<br />
in the 1980s and 1990s, the real trade-off between inflation and<br />
unemployment has become more benign due to increased actual and<br />
potential competition as a result of increased world trade, the<br />
proliferation of offshore production sites (and producers), new<br />
technology, changes in the nature of labor markets, and industry<br />
deregulation. In fact, the recovery since 1992 has seen the unemployment<br />
rate fall from 7.5 percent to 4.9 percent without any increase<br />
in inflation whatsoevera clear case where the facts inconveniently<br />
trump received theory. The Fed is nonetheless poised to raise<br />
interest rates in the near future if unemployment continues to<br />
fall or simply remains below 5 percent.</p>
<p>
Such action would not only sabotage<br />
growth in the short run; it compromises the potential for long-term<br />
growth because of an important feedback loop between monetary<br />
policy, the investment climate, and future growth. For private<br />
business to continually invest in new capital and new technologies,<br />
firms must believe that the output created by the new equipment<br />
will actually be sold. Here is another case where Say's Law operates<br />
in reverse. If private business believes demand growth will be<br />
slowed in the future, it will reduce its current investments accordinglyproducing<br />
the self-fulfilling prophecy of slow growth. If it expects, on<br />
the other hand, that growth will be encouraged by policymakers,<br />
then business will more likely make the investments that will<br />
feed back in the form of higher productivity and faster growth.<br />
The prospect of more demand for products produces the supply of<br />
investment and innovation needed to make that prospect come true.<br />
If the monetary authorities signal that 2.3 or 2.5 percent growth<br />
is the most we can achieve, then that is what we are going to<br />
get.</p>
<p>
The demise of fiscal policy in the<br />
service of balancing the budget at any cost also sabotages potential<br />
growth. When deficits continue to rise without limit as a percentage<br />
of GDP, there is no doubt a drag on economic growth. But targeting<br />
a zero deficit is not necessarily good for growth either. Economic<br />
expansion in a technological age requires continuous investment<br />
in public infrastructure, in generic R&amp;D, and in training<br />
and education. If we continue to sacrifice these on the altar<br />
of budget balance, we could undermine the very complementarities<br />
that growth requires. A strong case can be made that we should<br />
now be spending more on public investment, not less, if we do<br />
not want to undermine the prospects for growth. </p>
<p>
Industry too must consider all of the<br />
complements to growth that need to be in place to assure a new<br />
era of economic expansion. Continuing to build closer working<br />
relationships with labor where both workers and managers are committed<br />
to productivity, quality, and innovation is one area where much<br />
is still to be accomplished. We must leave behind an economy where<br />
workers are treated as expendable costs rather than the crucial<br />
assets they are or could be. Expanding the level of employee training<br />
throughout the enterprise, rather than (as at present) mainly<br />
at the top, is another area where good business practice could<br />
enhance national economic growth.</p>
<p>
</p><hr noshade="noshade" size="2" /><h3>THE CASE FOR OPTIMISM</h3>
<p>
All of this suggests that faster growth<br />
is possibleif we don't sabotage it. Changes in the labor supply<br />
are providing one leg. The maturing of the information age is<br />
providing the other. If we can make sure that fiscal and monetary<br />
policy do not sabotage growth and if we can encourage businesses<br />
to expand their investments in human capital to meet the investments<br />
they have already made in their physical plant and equipment,<br />
we will be on the road to faster growth. If we use that growth<br />
dividend wisely, we can raise living standards, reduce the gap<br />
between the rich and the poor, and help solve many of the pressing<br />
social problems we face. We can repair many of the gaps in the<br />
social safety net for both those who can work and those who cannot.</p>
<p>
We may not be able to quite reach the<br />
pinnacle of economic growth we enjoyed during the post-war glory<br />
days, but we surely can do much better than the growth depression<br />
we have endured for the past quarter century. Indeed, we might<br />
have begun down this road a decade ago and avoided a great deal<br />
of economic and social pain, if we had shed old resistances earlier<br />
and adopted the appropriate pro-growth policies already.</p>
<p></p>
<p><br /><br /><!-- dhandler for print articles --></p></div></div></div>Wed, 19 Dec 2001 18:48:05 +0000141099 at http://prospect.orgBarry BluestoneOverworked and Underemployedhttp://prospect.org/article/overworked-and-underemployed
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p><font class="nonprinting"><br /><table border="0" cellspacing="10" cellpadding="5" align="LEFT" valign="TOP" width="150"><br /><tr><br /><td>
<p><font size="-1">Works Discussed<br />
in this Essay:</font><br /></p><hr width="75" /><p>
<font size="-1">Rebecca Blank, "Are Part-Time Jobs Lousy Jobs?" In Gary Burtless, ed., <i>A Future of Lousy Jobs? The Changing Structure of U.S. Wages</i> (Brookings Institution, 1990).</font></p>
<p>
<font size="-1">John E. Bregger and Steven E. Haugen, "BLS Introduces New Range of Alternative Unemployment Measures," <i>Monthly Labor Review</i>, October, 1995.</font></p>
<p>
<font size="-1">Polly Callaghan and Heidi Hartmann, <i>Contingent Work: A Chartbook on Part-Time and Temporary Employment</i> (Economic Policy Institute, 1991).</font></p>
<p>
<font size="-1">Lawrence Mishel and Jared Bernstein, <i>The State of Working America 1994-95</i> (M.E. Sharpe, 1994).</font></p>
<p>
<font size="-1">John P. Robinson and Ann Bostrom, "The Overestimated Workweek? What Time Diary Measures Suggest," <i>Monthly Labor Review</i>, August, 1994.</font></p>
<p>
<font size="-1">Stephen J. Rose, "Declining Job Security and the Professionalization of Opportunity," Research Report No. 95-04, National Commission for Employment Policy, 1995.</font></p>
<p>
<font size="-1">Juliet Schor, <i>The Overworked American: The Unexpected Decline of Leisure</i> (Basic Books, 1991).</font><br /></p></td>
</tr></table><p><font size="+2">A</font>t least since the 1980s people have said that they work "too<br />
hard"that they are spending too much time on the job, with<br />
too little left for family, chores, or leisure. In 1991 this frustration<br />
became conventional wisdom thanks to Juliet Schor's best-seller,<br /><i>The Overworked American</i>, which demonstrated that Americans<br />
worked an average of 163 more hours in 1990 than they had in 1970or<br />
the equivalent of nearly an extra month of full-time work per<br />
year. According to Schor, men were working two and a half more<br />
weeks per year; women an average of seven and a half more weeks.<br />
These were startling statistics, reversing more than a century<br />
of gradual reduction in working time as society became richer<br />
and more productive. If Americans were working this much longer,<br />
then they were not only overworked by traditional U.S. standards,<br />
they were setting new world records.</p>
<p>
But critics challenged Schor's data and pointed to a logical flaw<br />
in her argument. Today, more people work part-time because they<br />
can't find full-time work; more are temping or working as short-term<br />
independent contractors. Job insecurity is rampant, and other<br />
statistics show that the number of weekly hours on the typical<br />
job has actually shrunk steadily since World War II. It seemed<br />
implausible that Americans were simultaneously "overworked"<br />
and "underemployed," thus prompting the question: Were<br />
Schor and all the harried Americans who cheered her book's appearance<br />
wrong?</p>
<p>
Not necessarily. It's possible, for instance, that we are mixing<br />
apples and oranges. The number of contingent jobs and average<br />
weekly hours refers to "jobs," not people.</p>
<p>
If individuals are moonlighting moreworking multiple jobs in<br />
any given weekthen the average workweek reported by employers<br />
can still shrink while the average workweek reported by workers<br />
can actually expand. It is also possible that one sector of the<br />
workforce is "overworked" while another portion is "underemployed."</p>
<p>
But the real story turns out to be even more intriguing and complicated.<br />
Based on a new analysis of the data, we have found that Americans<br />
are indeed working longer than they once did, if not quite as<br />
much as Schor would have us believe. But, more importantly, we<br />
have also found that many Americans are both overworked and underemployed.<br />
Because of growing job instability, workers face a "feast<br />
and famine" cycle: They work as much as they can when work<br />
is available to compensate for short workweeks, temporary layoffs,<br />
or permanent job loss that may follow. What's more, while American<br />
families as a whole are putting in more time, that work isn't<br />
producing significant increases in living standards. For the typical<br />
two-breadwinner household, having both parents work longer hours<br />
may not mean an extra trip to Disney World or nicer clothes for<br />
school; more likely, it means keeping up car payments or just<br />
covering the costs of food and housing.</p>
<p>
</p><hr /><h3>MULTITASKED </h3></font></p>
<p>
At one extreme are workers like Bill Cecil, a 50-year-old United<br />
Auto Worker member recently portrayed in the <i>Wall Street Journal</i>.<br />
Averaging four hours a day in overtime and volunteering to work<br />
seven days a week for most of the year, Cecil clocks an average<br />
of 84 hours a week at a Chrysler plant in Trenton, Michigan, where<br />
he works as a skilled millwright. In the past two years, Cecil's<br />
extraordinary work effort has paid off. He has averaged more than<br />
$110,000 a year in gross pay. Sacri ficing, by his own admission,<br />
"freedom and time with family," he works as much overtime<br />
as the company will let him in order to help send his four kids<br />
to college, fill his lunch pail with lobster salad rather than<br />
luncheon meat, and underwrite his golf habit, which he indulges<br />
whenever a vacation or a layoff permits. While Bill Cecil's case<br />
is exceptional, 70 percent of the skilled-trades workers at his<br />
engine production facility are working at least some extra hours<br />
most weeks.</p>
<p>
Increasing overtime is becoming more commonplace throughout the<br />
manufacturing industry. For the first four out of five post-World<br />
War II business cycles, average weekly hours of work for production<br />
and nonsupervisory workers in manufacturing remained roughly constant,<br />
varying only slightly between 40.1 and 40.4 hours. However, during<br />
the current business cycle, from 1989 to 1996, the average workweek<br />
has jumped to 41 hourswith average overtime reaching a post-World<br />
War II peak of 4.7 hours per week in 1994.</p>
<p>
A <i>Fortune</i> magazine poll of Fortune 500 CEOs in 1990 found<br />
a similar tendency toward more work among executives. Sixty-two<br />
percent of CEOs reported their executives were working longer<br />
hours than they had ten years before. They reported that nearly<br />
nine out of ten of their high-level executives normally put in<br />
more than 50 hours a week while three-fifths of middle managers<br />
did the same.</p>
<p>
Moonlighting is also on the rise. In 1979, 4.9 percent of U.S.<br />
workers reported working more than one job during the same workweek.<br />
By 1995, the percentage was up to 6.4 percent. Virtually all of<br />
this increase has occurred among women, who now represent nearly<br />
half of all multiple job holders. According to a recent survey<br />
sponsored by the <i>Washington Post</i>, the Kaiser Family Foundation,<br />
and Harvard University, two out of five families report they have<br />
sent an additional family member into the paid labor force or<br />
had an existing working member take on an additional jobsimply<br />
because the family needed extra money.</p>
<p>
Working more makes sense from both the employers' and the employees'<br />
perspectives. Manufacturing firms like Chrysler do not hesitate<br />
to schedule large amounts of overtime when product demand outstrips<br />
supply, even if it means paying time and a half, double time,<br />
or triple time during holidays, because it is still less expensive<br />
than covering the high fixed costs of recruitment, training, and<br />
possibly the underwriting of future severance pay associated with<br />
hiring new workers. For salaried white-collar employees who are<br />
exempt from hours regulations, the arithmetic is even simplerthe<br />
extra hours often cost the company nothing at all.</p>
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<p></p></center><br /><hr size="1" /><p>
Fortune 500 CEOs and their executives say they need to put in<br />
overtime just to keep up with global competition and compensate<br />
for internal restructuring or middle-level management downsizing.<br />
But why would blue-collar workers so willingly give up leisure<br />
or family time? Schor has identified one factor, which she calls<br />
"capitalism's squirrel cage"an "insidious cycle<br />
of work and spend" where people work long hours to support<br />
a material lifestyle always a bit beyond their reach. But that<br />
suggests the increased work hours are buying a rising standard<br />
of affluence, which is somewhat misleading. Indeed, a more compelling<br />
reason for extra work is the slowdown in wage growth during the<br />
past two decades. Between 1947 and 1973, real hourly wages for<br />
production and nonsupervisory employees rose by 79 percent. Since<br />
1973 hourly wages have actually declined by more than 13 percent.<br />
For many workers, working longer hours is the only way to compensate<br />
for lower hourly wages.</p>
<p>
Of course when pollsters ask people, "Would you like to work<br />
less?", most say "yes." But when pollsters include<br />
a caveatthat fewer working hours would mean less take-home paythe<br />
answer changes sharply. Over the last 20 years, surveys with this<br />
appropriately worded question have been answered with great consistency:<br />
Approximately 60 percent say they prefer their current work schedule<br />
and pay. Of those who express a desire to change their working<br />
time, more people, by about three to one, express the desire to<br />
work longer rather than shorter hours.</p>
<p>
Union negotiators in the U.S. know this, which is why they so<br />
rarely make reducing work time a priority in collective bargaining.<br />
In fact, many workers complain bitterly whenever management prerogative<br />
or union contract restrict overtime hours. In a "real experiment"<br />
on this issue, New York's state government in 1984 began allowing<br />
their workers to take voluntary reductions in work schedules without<br />
affecting their career statuses. The plan was flexible and permitted<br />
workers to move on and off "V-time." Since its inception,<br />
however, the program has never enrolled more than 2 percent of<br />
the workforce.</p>
<p>
<font size="+2">T</font>his expressed desire for more hours is consistent with<br />
the trend toward more contingent work. At the same time that many<br />
workers are looking to expand their number of working hours, the<br />
economy has shifted steadily from manufacturing to sectors like<br />
retail trade and services, where part-time work is more common.<br />
One estimate for 1995 places the total number of contingent workers<br />
(part-time, temporary, and contract workers) at close to 35 million28<br />
percent of the civilian labor force. Of these, 18 percent of the<br />
workforce or 23 million workers were part-time, working 35 hours<br />
or less per week. Smaller in absolute numbers, but growing much<br />
faster, is the temporary workforce, which between 1982 and 1995<br />
more than tripled to 1.4 million workers. Manpower, Inc. now boasts<br />
it is the largest employer in America, submitting more W-2 forms<br />
to the Internal Revenue Service each year than any other firm.<br />
The number of contract and self-employed workers is also growing<br />
rapidly, indeed explosively. The U.S. General Accounting Office<br />
has reported that the number of individuals who are self-employed<br />
or working under personal contract was growing at more than 13<br />
percent a year in the late 1980s. By 1988, 9.5 million Americans<br />
worked for themselves either full-time or as a supplement to regular<br />
or part-time employment.</p>
<p>
A large proportion of the contingent workforce has chosen voluntarily<br />
to work part-time, as temporaries, or as independent contractors.<br />
Still, involuntary part-time employment is growing much faster<br />
than the voluntary variety. In 1973, 19 percent of total part-time<br />
employment was accounted for by individuals who wanted full-time<br />
jobs but could not find them. By 1993, this proportion was up<br />
to 29 percent. The incidence of involuntary part-time work is<br />
especially high among men. In 1985, one in four part-time women<br />
reported their part-time status was involuntary; nearly half of<br />
all part-time men did so.</p>
<p>
<font size="+2">F</font>or the labor force as a whole, these numbers begin to<br />
add up. Since 1994, the Bureau of Labor Statistics (BLS) has been<br />
compiling a new set of alternative measures of unemployment and<br />
underemploymentwhat the Labor Department calls "labor resource<br />
underutilization." In addition to the official unemployment<br />
rate, the BLS adds three types of "underutilized" workers:<br />
(1) those who have stopped looking for work only because they<br />
have become discouraged by their apparent job prospects; (2) those<br />
who are "marginally attached" to the civilian labor<br />
force; and (3) those who are working part-time only because they<br />
cannot find full-time jobs. The "marginally attached"<br />
include those who want and are available for a job and have recently<br />
searched for work, but have left the official labor force because<br />
of such constraints as child care or transportation problems.</p>
<p>
The official unemployment rate in 1995 was 5.6 percent with an<br />
average of 7.4 million failing to find work each month. Adding<br />
discouraged workers to the total brings the "underemployment"<br />
rate up to 5.9 percent. Adding the "marginally attached"<br />
ups the rate to 6.8 percent. Finally, adding in the involuntarily<br />
part-time brings the rate to 10.1 percent. In what was a good<br />
year for the economy and employment growth, 1995, the total number<br />
of unemployed and underemployed workers reached nearly 13.5 millionone<br />
in ten of the total labor force.</p>
<p>
All of these trends contribute to the decline in the average workweek<br />
reported by employers since at least World War II. As the chart<br />
on this page indicates (see "The Shrinking Workweek"),<br />
from 1947 to 1958 the average workweek was nearly 40 hours, the<br />
"full-time" standard for much of this century. In the<br />
most recent business cycle, the average workweek fell below 35<br />
hours, the cutoff normally used to define a "part-time"<br />
job. Ironically, in what is supposed to be an "overworked"<br />
nation, the typical job is now part-time! Again, we should ask,<br />
"overworked," "underemployed," or perhaps<br />
both?</p>
<p>
</p><hr /><h3>WHOSE NUMBERS SHOULD WE BELIEVE?</h3>
<p>
Whether we believe that Americans are overworked or underemployed<br />
depends, in part, on whether we believe the work time data. Many<br />
economists question Juliet Schor's findings and it's not hard<br />
to understand why: The idea that Americans are, on average, spending<br />
the equivalent of an extra month a year in paid work seems almost<br />
unbelievable.</p>
<p>
But is it? According to one recent study, Schor's basic finding<br />
holds up, but her estimates of overwork appear somewhat exaggerated.<br />
Using data from the Current Population Survey, Larry Mishel and<br />
Jared Bernstein of the Economic Policy Institute have re-estimated<br />
annual work hours for various years. Their research confirms the<br />
general proposition of increased annual working hours, but for<br />
a comparable period (1973 to 1992) their estimate is only three-fifths<br />
as large as Schor's. They calculate that in 1973, the average<br />
workweek (for both employed and self-employed workers toiling<br />
in the public as well as the private sector) was 38.4 hours. The<br />
average work year was 43.2 weeks, yielding an annual estimate<br />
of 1,659 hours of work. By 1992, the average workweek had climbed<br />
by 0.6 hours while the average work year had increased to 45.2<br />
weeks. Hence, annual average hours had risen to 1,759, an increase<br />
of 100 hours or 6 percentbut 63 hours less than Schor's estimate.</p>
<p>
</p><table width="200" border="1" cellpadding="5" cellspacing="1" align="right"><br /><caption align="TOP"><b>The Shrinking Workweek</b></caption><br /><tr><td colspan="2">Since World War II, the average workweek, as reported by employers, has declined.</td></tr><br /><tr><td align="center">Years</td><td align="center">Average Week* In Hours</td></tr><br /><tr><td>1947-1958</td><td>39.5</td></tr><br /><tr><td>1959-1972</td><td>38.2</td></tr><br /><tr><td>1973-1978</td><td>36.2</td></tr><br /><tr><td>1979-1988</td><td>35.0</td></tr><br /><tr><td>1989-1996</td><td>34.5</td></tr><br /><tr><td colspan="2"><font size="-1">*Total private-sector employment.</font>
<p>
<font size="-1">Source: Council of Economic Advisers, <i>Economic Report of the President, 1987</i>, Table B-41, and Council of Ecomoice Advisers, <i>Economic Report of the President</i>, 1996, Table B-43</font></p></td></tr><br /></table><br />
Yet even these more reasonable figures raise questions. Note that<br />
the steady decline in the average workweek reported by employers<br />
as shown in the "Shrinking Workweek" chart suggests<br />
that for average hours per job to decline while average hours<br />
per worker increases, there would have to be enormous increases<br />
in moonlighting. This seems implausible, because even with the<br />
recent increase in moonlighting, only 8 million workers out of<br />
a workforce of more than 125 million report holding more than<br />
one job.
<p>
The problem may be with the very survey data upon which Schor,<br />
Mishel, and Bernstein all rely. The estimates of hours worked<br />
come from the March Current Population Survey (CPS) for each year,<br />
which the U.S. Census Bureau and the Department of Labor compile<br />
annually. Among several dozen questions about labor market activity,<br />
the CPS asks respondents to report "hours worked last week"<br />
and "usual weekly hours of work last year." Individuals<br />
have only a few seconds to answer these questions. In making what<br />
may be a wild guess, particularly for those people whose hours<br />
vary substantially from week to week, the individuals frequently<br />
guess high. And the more harried and rushed they feel, the higher<br />
they guess. Could you account for the actual number of hours you<br />
spent working last week?</p>
<p>
<font size="+2">A</font> more accurate measure of hours worked comes from special<br />
studies that target the work time issue by asking respondents<br />
to keep a 24-hour time diary of everything they do over a one-<br />
to two-day period. Such time diary surveys were first carried<br />
out by the University of Michigan Survey Research Center in 1965<br />
and 1975, and then again by the University of Maryland in 1985.<br />
The accuracy of work time estimates derived from this survey approach<br />
is presumably superior to CPS measures for two reasons. First,<br />
the exercise's sole purpose is studying the use of time; second,<br />
respondents do not have to plum their memories for what they did<br />
a week ago or try to calculate instantly how many weeks they worked<br />
all of last year.</p>
<p>
Sure enough, a comparison of CPS-estimated hours of work and diary<br />
entries suggests that people overestimate how much they workand<br />
that the overestimates get bigger the more hours they put in.<br />
According to John Robinson of the University of Maryland and Ann<br />
Bostrom of Georgia Tech University, who studied the two sets of<br />
surveys, among those estimating 20 to 44 weekly hours, the CPS-type<br />
estimates were only slightly higher than the diary entries. But<br />
among workers claiming to "usually" work more than 55<br />
hours per week, the gap was 10 hours or more per week. Robinson<br />
and Bostrom concluded that "the diary data suggest that only<br />
rare individuals put in more than a 55- to 60-hour workweek, with<br />
those estimating 60 or more hours on the job averaging closer<br />
to 53-hour weeks." Moreover, using the diary studies for<br />
1965, 1975, and 1985, Robinson and Bostrom found a systematic<br />
increase in the size of the estimate gap over time. The gap rose<br />
from just one hour in 1965 to four hours in 1975 to six hours<br />
in 1985, which is more than enough to account for the alleged<br />
"overwork" that Schor and Mishel and Bernstein claim<br />
to have found.</p>
<p>
When Robinson and Bostrom analyzed diaries for 1965, 1975, and<br />
1985 more carefully, they found only small changes in hours worked<br />
among those who normally work 20 hours or more per week. Between<br />
1965 and 1985, men's average hours declined by 0.7 hours per week<br />
from 47.1 to 46.4 hours, while working women's hours increased<br />
by the same amount (0.7) from 39.9 to 40.6 hours. If these numbers<br />
are believed, then the source of increased hours worked that Schor<br />
observed must be new entrants to the labor forceagain, many of<br />
them womenand part-timers who have increased their part-time<br />
hours. Of course, whether this should be counted as "overwork"<br />
or not is a matter of deeply divided opinion.</p>
<p>
</p><hr /><h3>SCHORING UP THE FINDINGS </h3>
<p>
What can we make of such sharply different findings? To answer<br />
this question, we decided to pursue still another approach, using<br />
yet another type of survey instrument. So far, all of the research<br />
on working hours has relied on data snapshots at different points<br />
in time using either the CPS or diary information. An alternative<br />
approach is to use longitudinal datain other words, information<br />
about the same people gathered year after yearto track working<br />
hours. Using this information, we can follow the work time pattern<br />
of, say, a particular age group over several yearsas one could<br />
with CPS dataor follow the same workers over time. Here we do<br />
both in order to provide completely new estimates of work time.<br />
We use the Panel Study of Income Dynamics (PSID), a data set of<br />
families that the University of Michigan Survey Research Center<br />
has been following since 1968. <img src="../images/31blue02.gif" alt="Graph--Individuals Working Harder Again" align="Right" width="300" border="0" vspace="10" hspace="10" />The long-running nature of the<br />
PSID permits a comparison of working time during two ten-year<br />
periodsthe 1970s (1969-1979) and the 1980s (1979-1989). (These<br />
periods had similar growth rates in real output per person and<br />
in job creation, and each encompassed two complete business cycles.<br />
Hence, the comparison is a reasonable one to make.) We also combine<br />
the two decades of data to follow a particular age group (in this<br />
case, prime age workers with job experience) in order to derive<br />
typical trends in annual work hours for men and women, whites<br />
and blacks, and for segments of the population with differing<br />
amounts of schooling.</p>
<p>
While the PSID does not provide the full detail nor perhaps the<br />
precision of hours estimates culled from the diary method, its<br />
data on hours worked is superior to that of the CPS. First, PSID<br />
asks respondents to detail their work experience by recalling<br />
how many days they were on vacation, on sick leave, on strike,<br />
or on leave due to other family members' illness. It then asks<br />
respondents to answer questions about regular hours of work per<br />
week and weeks worked on his or her main job. Then it poses the<br />
same questions concerning up to three other jobs respondents held<br />
during the year. Finally, all of this information is combined<br />
to yield an estimate of annual hours. Obviously, this approach<br />
suffers from recall problems, much as the CPS does, but the detail<br />
on each job presumably permits a better estimate.</p>
<p>
<font size="+2">T</font>he first part of our analysis is based on computing the<br />
average hours of work in each year from 1967 through 1989 for<br />
prime age workers (ages 25-54). In this case, we use the PSID<br />
as a series of cross sections where the sample individuals in<br />
each year vary as younger individuals enter the prime age group<br />
and aging workers leave it. We limit our sample in each year to<br />
those who reported hours of work, eliminating those from consideration<br />
who were out of the labor force in a given year. We generated<br />
separate estimates for men and women, and broke the findings down<br />
by race and by education. The graph on page 63 ("Individuals<br />
Working Harder, Again") provides the results for all prime<br />
age workers.</p>
<p>
There is clear evidence of variation related to the business cycle.<br />
Average hours dip sharply in 1970-71, in 1975, and then again<br />
during the steep 1981-82 recession. But overwhelming the business<br />
cycle is a U-shaped trend in hours of work. Average hours appear<br />
to decline through the early 1980s and then begin a sharp recovery<br />
throughout the decade. If we compare 1979 and 1989, the last two<br />
business cycle peaks, there does indeed appear to be an increase<br />
of 79 hours per year for the average worker. But over a longer<br />
period, this increase marks not so much a startling increase as<br />
a return to levels that prevailed in the late 1960s.</p>
<p>
To obtain a more accurate estimate of the trend in hours, we ran<br />
a statistical exercise to control for the business cycle. Having<br />
done this, we find a small, but statistically significant, overall<br />
upward trend in annual hours for prime age workers as a group.<br />
The trend amounts to only 3.3 hours per year. Hence, over a 20-year<br />
period, we find a 66-hour increase in annual workthe equivalent<br />
of 1.5 weeks of full-time work per year. This is well below Schor's<br />
estimate of 163 hours and a third below that what Mishel and Bernstein<br />
found. But, importantly, the trend is decidedly upward, in contrast<br />
to the essentially flat line Robinson and Bostrom found for the<br />
1965-1985 period using the diary method.</p>
<p>
Among men, working hours declined slightly, after we control for<br />
the business cycle. But for women, hours increased significantly.<br />
Indeed, our estimate of 18.8 additional hours per year translates<br />
into a 20-year total somewhat greater than even Schor's estimate.<br />
We also find significant differences in the hours trajectories<br />
by race. Reflecting trends well documented elsewhere, our estimate<br />
of a decline of 7.7 hours per year for black men translates into<br />
an average work year in the late 1980s more than 150 hours shorter<br />
than in the late 1960s. In 1989, we estimate that black men averaged<br />
only 1,950 hours per year compared with just under 2,300 hours<br />
for white men. Higher unemployment rates are responsible for part<br />
of this difference. Shorter workweeks explain the remainder. This<br />
suggests that the continuing earnings gap between white and black<br />
men is only partly accounted for by differences in wage ratesthe<br />
traditional measure of labor market "success." A large<br />
amount of the gap is also due to differences in hours worked.<br />
Wage rates matter, but what is really killing black men in the<br />
labor market is their inability to find full-time, full-year jobs<br />
as readily as their white counterparts.</p>
<p>
The racial gap in hours worked among women shows an intriguing<br />
time pattern. On an annual basis, there appears to have been virtually<br />
no gap in work hours in 1967. The gap then widened significantly,<br />
so that by the mid-1970s black women were working almost 200 hours<br />
more per year than white women. White women caught up again, and<br />
by 1989 white and black women were working virtually the same<br />
amount. To close the gap, white women's cycleadjusted hours had<br />
to rise substantially faster than that of black women. This is<br />
precisely what happened. Over 20 years, white women's annual hours<br />
increased by the equivalent of 10.3 weeks of full-time work, nearly<br />
double the 5.4 weeks for black women.</p>
<p>
<font size="+2">A</font>s a general rule, then, there has been a slight reduction<br />
in men's work hours and a large increase in women's hours. Given<br />
these trends, we can ask what has happened to family work effort<br />
as America has undergone the transition from the prototypical<br />
"Ozzie and Harriet" division of labor of the 1950s to<br />
the dual-career family of the 1980s and 1990s.</p>
<p>
<img src="../images/31blue03.gif" alt="Graph--More Total Hours" align="Right" width="300" border="0" vspace="10" hspace="10" />To investigate the trend in family work effort, we have estimated<br />
the combined hours of work for "prime age" families<br />
in which both husband and wife are working. The long-term trend<br />
is shown in the graph above ("More Total Hours . . .").<br />
There is a clear and nearly unbroken trend toward much greater<br />
work effort, interrupted only modestly by the recessions of 1971,<br />
1974-75, and 1980-1982. By 1988, prime age working couples were<br />
putting in an average of 3,450 hours per year in combined employment,<br />
up from 2,850 two decades before. (Data for family hours and earnings<br />
in our version of the PSID were incomplete for 1989, so we use<br />
1988 as the end point for this analysis.)</p>
<p>
Adjusting for business cycle effects, we calculate that for all<br />
husband-wife working couples, family work effort increased by<br />
more than 32 hours per year for each year of the 1970s and 1980s.<br />
Hence, in the span of just two decades, working husband-wife couples<br />
increased their annual market work input by a cycle-adjusted 684<br />
hours or 4 months of full-time work. The typical dual-earner couple<br />
at the end of the 1980s was spending an additional day and half<br />
on the job every week. If individuals are not more overworked<br />
than before, families certainly are.</p>
<p>
Increases in family work effort differ significantly depending<br />
on race and education. The increase in working hours among white<br />
working couples was 60 percent larger than the increase for black<br />
couplesa reflection of both the sharp decline in black men's<br />
hours and the large increase in white female work effort. More-educated<br />
working couples also increased their work effort more than those<br />
with less schooling. Those in which the husbands had at least<br />
undergraduate college degrees increased their combined work effort<br />
by nearly 730 hours compared to an increase of only 490 hours<br />
for couples headed by high school dropouts. The "overeducated"<br />
are the ones most "overworked."</p>
<p>
Has this enormous increase in work effort paid off in terms of<br />
increased family earnings? The graph on the right-hand page (".<br />
. . and for What?") shows our comparison of hours worked<br />
and earnings growth.</p>
<p>
For prime age working couples as a group, combined real earnings<br />
rose by 18.5 percent between 1973 and 1988. (This represents an<br />
increase from $43,851 to $51,955 in 1989 dollars.) Most of this<br />
modest increase, however, did not come from improved wages, but<br />
from increased work effort. The 18.5 percent increase in real<br />
earnings was purchased with a 16.3 percent increase in hours worked.<br />
Over the entire 15-year period, the combined average husband-wife<br />
hourly wage increased by only 1.8 percentthe equivalent of a<br />
real hourly wage increase of less than 30 cents over the entire<br />
period, or 2 cents each year!</p>
<p>
As such, Schor's "squirrel cage" does not appear to<br />
be far off the mark. American mythology holds that long hours<br />
will pay off in a steadily increasing standard of living; in other<br />
words, sacrificing time with family can pay for a dishwasher or<br />
microwave and, down the road, a more expensive college for one's<br />
children. Yet from a purely material perspective, all the extra<br />
hours from the "average" working family have yielded<br />
only a very modest improvement in the amount of goods and services<br />
they can buy.</p>
<p><img src="../images/31blue04.gif" alt="Graph--And For What?" align="top" width="300" border="0" vspace="10" hspace="10" /><br /><br />
But even this story is too sanguine for most families. When we<br />
break down the hours and earnings data by education group the<br />
tale gets even more depressing. Most Americans are not working<br />
harder so they can afford a fancier minivan; they're just trying<br />
to make payments on their old car or cover the rent. When you<br />
remove from the equation families headed by a worker with at least<br />
a college degree, it turns out that the enormous increase in work<br />
effort over the past 20 years has allowed families to maintain<br />
their old standard of livingbut almost nothing more. For families<br />
headed by high school dropouts, the situation is the most dismal.<br />
Between 1973 and 1988, such families increased their annual work<br />
effort by nearly 12 percent yet ended up with 8 percent less annual<br />
income. For families headed by high school graduates or some college,<br />
work effort was up by 16 to 17.4 percent, producing less than<br />
a 4 percent increase in total earnings. These families are trapped<br />
in an <i>Alice in Wonderland </i>world, running faster and faster<br />
just to stay in the same place. For all of these families, the<br />
"family" hourly wage has fallen precipitously, by as<br />
much as 17 percent in the case of the high school dropout.</p>
<p>
Of course, more work still pays off for one group: families headed<br />
by a college graduate. These families increased their work effort<br />
by about the same percentage as those headed by high school graduates<br />
or those with some college, yet their material consumption standard<br />
increased by nearly a full third between 1973 and 1988. Unfortunately,<br />
such well-educated families comprise less than a third of all<br />
American dual-income families.</p>
<p>
</p><hr /><h3>FEASTING BEFORE THE FAMINE</h3>
<p>
To this point, we have been concerned with trends in hours worked<br />
and earnings for particular demographic groups. We now shift our<br />
attention to an equally important issue. What can we say about<br />
the year-to-year variation in work hours for individual workers?<br />
This is of obvious importance given the debate over the apparent<br />
growth in job insecurity. If a worker is insecure about his job,<br />
then it is possible he may voluntarily work as much overtime as<br />
he can in order to cushion the blow of depressed income from future<br />
joblessness. Or, for that matter, he may work extra hours because<br />
he has to pay off credit card debts that accumulated in the last<br />
bout of underemployment.</p>
<p>
To study this issue, we again separate the PSID into two ten-year<br />
time frames corresponding to the 1970s (1969-1979) and the 1980s<br />
(1979-1989). To focus on prime age workers, we restrict our analysis<br />
of each decade to individuals who began at ages 24 to 48 and ended<br />
the decade at ages 34 to 58. This prime age range provides a sample<br />
of those who, for the most part, are old enough to have completed<br />
their formal schooling and not old enough to have begun cutting<br />
back their work hours in anticipation of retirement.</p>
<p>
To measure inter-year variation in work hours for these prime<br />
age workers, we have developed a special measure we call "Hi-Lo."<br />
This statistic measures the proportion of individuals in a group<br />
who, during a decade, experience at least one year in which they<br />
work more than 2,400 hours and at least one year of 1,750 hours<br />
or less. The "Hi" value is equivalent to an average<br />
workweek of approximately 46 hours or more. The "Lo"<br />
value is equivalent to less than 35 hours per week. These cutoffs<br />
correspond to common definitions of "overtime" work<br />
and "part-time" work.</p>
<p>
According to our analysis, among all prime age males, nearly three<br />
out of ten workers (28 percent) had at least one year of substantial<br />
"overtime" and at least one year of significant "underemployment"<br />
during the 1980s. Compared to the 1970s, the proportion of such<br />
individuals experiencing such hours variation was up by nearly<br />
8 percent.</p>
<p>
For black men, the incidence of Hi-Lo variation is substantially<br />
higher than among white men, with 37 percent of black men experiencing<br />
this variety of "feast and famine" employment history.<br />
Those who have completed a high school diploma or college degree<br />
appear to experience less hours variation than those who drop<br />
out of high school or do not complete college.</p>
<p>
But by the far the strongest indicators of the feast-or-famine<br />
syndrome emerge when we break the Hi-Lo numbers down according<br />
to earnings levels and the number of job changes. Among men in<br />
the lowest 20 percent of the earnings ladder, four out of ten<br />
experience Hi-Lo hours variationmore than double those in the<br />
top 20 percent. Those who have low earnings even when they are<br />
working full-time are the most likely to experience a feast-and-famine<br />
work life. Not surprisingly, those who change employers more often<br />
face the highest rates of Hi-Lo activity. More than half of prime<br />
age men who change employers at least four times in a decade face<br />
years of "overtime" and years of "underemployment."<br />
For women, the "overworked-underemployed" phenomenon<br />
expanded as well between the 1970s and 1980s. In the earlier decade,<br />
only 12 percent experienced such Hi-Lo work histories. In the<br />
1980s, nearly 21 percent of women spent their lives on the work<br />
time roller coaster.</p>
<p>
High school dropouts have seen a substantial rise in Hi-Lo activity<br />
between the two decades. But so have college graduates and the<br />
top-quintile earners. One might conjecture from these findings<br />
that those with the fewest skills and those in the ranks of middle<br />
managers have been particular victims of downsizing. Future research<br />
with the PSID should be able to provide more evidence to test<br />
this hypothesis.</p>
<p>
Taken together, the results for men and women suggest that increased<br />
job instability has led to increased hours variability for men<br />
and increased hours and variability of work for women. While the<br />
data presented here cannot prove that male job instability causes<br />
men to work more overtime when it is available and at the same<br />
time increases women's workforce participation, the results are<br />
fully consistent with such a thesis. In short, we can conjecture<br />
that "underemployment" of men may be leading to "overwork"<br />
for families. Because Dad's work prospects are more uncertain<br />
than ever, Mom is working harder than ever before.</p>
<p>
<font size="+2">I</font>n the end, then, it turns out that both Schor and her<br />
critics were partially right. There is compelling evidence of<br />
both overwork and underemployment not only across the workforce,<br />
but for individual workers (particularly men) who may face bouts<br />
of full-time work interspersed with years in which part-time hours<br />
are the rule. In both the 1970s and the 1980s, more than one-quarter<br />
of men experienced a decade in which they worked at least one<br />
year of "overwork" (more than 46 hours per week) and<br />
at least one year of "underemployment" (less than 35<br />
hours per week). How much of this is voluntary cannot be judged,<br />
but the finding is consistent with other research that shows growth<br />
in job instability and income insecurity. Adding to this evidence<br />
is our finding that those workers who change jobs more than four<br />
times in a decade are more than three times as likely to face<br />
bouts of "overwork" and "underemployment"<br />
as those who have at most one job change during the same period.</p>
<p>
The reason for this overwork, ironically, turns out to be underemployment.<br />
Men are working overtime to compensate for expected job loss in<br />
the future. Women have expanded their work effort to cover for<br />
what otherwise would be a sharp reduction in family living standards.</p>
<p>
What does this foreshadow for family and community? Americans<br />
will not find a better balance between work and leisure, between<br />
earning a living and spending time with loved ones, between wage<br />
earning and "civic engagement," until the economy provides<br />
long-term employment security and rising wages. If past is prologue,<br />
the last 25 years of U.S. labor market history should not make<br />
us sanguine about the possibilities.</p>
<p>
There is serious political talk, now and then, about legislating<br />
shorter weeks. But no matter how much we may complain about being<br />
overworked and no matter how much we worry about latchkey kids,<br />
few American workers will support political action unless it is<br />
tied to a much broader set of policies aimed at improving material<br />
living standards along with more leisure.<br /><br /><br /><!-- dhandler for print articles --></p></div></div></div>Wed, 19 Dec 2001 18:48:05 +0000141161 at http://prospect.orgBarry BluestoneThe Inequality Expresshttp://prospect.org/article/inequality-express
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p><font class="nonprinting"> </font></p>
<h4><font class="nonprinting">WORKS DISCUSSED IN THIS ESSAY</font></h4>
<p><font class="nonprinting"><br />
Mickey Kaus, <i>The End of Equality</i>, BasicBooks, 1992<br />
Paul R. Krugman and Robert Z. Lawrence, "Trade, Jobs and Wages" <i>Scientific American</i>,April 1994<br />
Edward E. Leamer,"Wage Effects of the U.S.-Mexico Free Trade Agreement," in Peter M. Garber, ed.,<i>The Mexico-U.S. Free Trade Agreement</i>. MIT Press, 1993.<br />
Frank Levy and Richard Murnane,"U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," <i>Journal of Economic Literature</i>, September 1992<br />
Lawrence R. Mishel and Jared Bernstein, <i>The State of Working America</i>. Economic Policy Institute, 1993.<br />
Lawrence R. Mishel and Jared Bernstein, "Is The Technology Black Box Empty? An Empirical Examination of the Impact of Technology on Wage Inequality and the Employment Structure," Economic Policy Insitiute, April 1994.<br />
Michael D. Young, <i>The Rise of the Meritocracy 1870-2033</i>, Thames and Hudson, 1958. </font><br /></p><hr /><font class="nonprinting"> </font>
<p><font class="nonprinting"> <font size="+2">I</font>n his 1958 book, <i>The Rise of the Meritocracy, 1870-2033</i>, British sociologist Michael Young predicted that growing inequality in Britain's income distribution would spark a great populist rebellion in the year 2034. As British society moved closer to realizing the ideal of equal opportunity, Young wrote, it would also abandon any pretense of equal outcome: Each individual's socioeconomic status would depend less on lineage, family connections, and political influence, and more on intelligence, education, experience, and effort. Outright racial and gender discrimination and iniquitous privilege would be gone; inequality based on merit would take their place. The victims of this new inequality those who were once protected by good union wages, civil service status, or seniority would then take to the barricades.</font></p>
<p> <font class="nonprinting">We haven't seen any such revolution yet, but the rest of Young's prophecy today seems uncomfortably prescient. Virtually every number cruncher who has perused contemporary income data from the United States and the United Kingdom reports three clearly defined trends, each consistent with Young's forecast. First, the distribution of earnings in both countries increasingly reflects the distribution of formal education in the workforce. Second, the gap in earnings between the well educated and the not-so-well educated is steadily increasing. And finally, the real standard of living of a large proportion of the workforce particularly those with less than a college degree has steadily and sharply declined.</font></p>
<p> <font class="nonprinting">Universal acceptance of these trends has not, however, led to any agreement about their source. Some scholars emphasize increasing demand for skills in a high-technology economy. Others claim globalization of the economy has thrown workers in high-wage countries into competition with workers in low-wage ones. Still others indict deindustrialization, the decline of unions, rising immigration, and the proliferation of winner-take-all labor markets. This lack of consensus about causes has produced a lack of consensus about remedies.</font></p>
<p> <font class="nonprinting">Here we will attempt to solve the mystery of rising wage inequality, and in so doing consider what might be done to stymie it. The best primer for this exercise is Agatha Christie's <i>Murder on the Orient Express</i>.</font></p>
<hr /><h3><font class="nonprinting"><i>Merit or Market?</i></font></h3>
<p><font class="nonprinting"><i></i></font></p>
<p> <font class="nonprinting">When Young penned his satire, there appeared little reason to heed his warning. In the immediate postwar period, while Europe and the United States were enjoying the heady days of rapid growth, economic expansion almost always spawned greater equality. Class warfare was giving way to an implicit and generally peaceful social contract. The big trade-off between equality and growth so elegantly detailed by the American economist Arthur Okun seemed to hold more true in theory than in practice. In the U.S., real average weekly earnings would grow by 60 percent between 1947 and 1973. Median family income literally doubled. And over the same period, personal wages and family incomes became tangibly more equal, not less. Along with growth and greater equality, poverty declined across the nation. Those at the bottom of the distribution gained more on a percentage basis than those at the top. The higher wages of unionized workers did not come at the expense of other workers' living standards. If anything, the rising wages of higher-paid labor were extracted from the profits that traditionally went to the wealthy.</font></p>
<p> <font class="nonprinting">There is little dispute that by 1973 this trend had come to an end. Inequality actually rose, especially during the 1980s. Many initially blamed a slowdown in overall economic growth. But the expansion of the economy after the 1980-82 recession suggested a new dynamic at work: Faster growth no longer reduced inequality or did much to increase the earnings of those at the bottom of the skill ladder. Wage dispersion returned to levels not seen since before the 1960s. By the late 1980s, family income inequality was higher than at the end of World War II.</font></p>
<p> <font class="nonprinting">Wage dispersion, of course, is not the only source of economic inequality. Another source is demographic trends, such as the simultaneous rise in the number of dual income couples and single-parent families. The tremendous increase during the 1980s in nonwage sources of income for the well-to-do interest, dividends, rent, and capital gains plays an important role as well. But whatever role these other causes may play, changes in the distribution of wages and salaries are clearly a primary factor in rising inequality.</font></p>
<hr size="1" /><center> <font class="nonprinting"><a href="/subscribe/"><img border="0" alt="Subscribe to The American Prospect" src="/tapads/mini_subscribe.gif" /></a> </font></center><br /><hr size="1" /><p> <font class="nonprinting"><font size="+2">R</font>acial and gender discrimination continue to be the basis of large earnings differences. However, as the influence of more virulent prejudices has declined in the labor market, differences in education and skill have had a greater impact on wages. One manifestation of this trend is the increasing wage ratio of college-educated workers to high school dropouts. In 1963, the mean annual earnings of those with four years of college or more stood at just over twice (2.11 times) the mean annual earnings of those who had not completed high school. By 1979, this ratio had increased to 2.39. This was but a harbinger of things to come. By 1987, the education-to-earnings ratio had skyrocketed to nearly three to one (2.91). The trend continues today. </font></p>
<p> <font class="nonprinting">In fact, the entire pattern of wage growth during the 1980s reflects a remarkable labor market "twist" tied to schooling. (See "The Wage Gap," page 82). During this decade, the average real wage of male high school dropouts <i>fell</i> by over 18 percent, while male high school graduates suffered nearly a 13 percent real earnings loss. At the other end of the distribution, men who completed at least a master's degree emerged as the only real winners. Their earnings rose by more than 9 percent. Note that even men who had attended college without graduating saw a serious erosion in their earning power. And men who completed college discovered that their undergraduate degrees merely served to prevent a decline in inflation-adjusted wages. Women fared better than men in terms of overall wage growth, but the imprint of a labor market twist is clearly discernible here as well.</font></p>
<p> <font class="nonprinting">That three out of four U.S. workers have not completed college provides some indication of how large a proportion of the entire labor force has been adversely affected by the new meritocratic distribution. If we take some liberty with Robert Reich's definition of symbolic analysts people such as research scientists, design engineers, and public relations executives whose work focuses on problem-solving, problem-identifying, and strategic brokering activities and limit the use of this term to those with two or more years of schooling beyond the bachelor's degree, the successes in the new economy account for just 7 percent of the U.S. labor force. If we include men with the equivalent of at least a master's degree plus women with at least a bachelor's, we could say the proportion of real earnings winners includes about 15 percent of the workforce. The extreme losers in this new meritocratic society those with no more than a high school diploma still comprise more than half of all U.S. workers.</font></p>
<p> <font class="nonprinting">In economic terms, the "return" of education, or how much one earns with a given level of education, has diverged sharply from its "rate of return," or how much an additional year of education is worth. What we have seen is a reduction in the return of education a decline in earnings for high school graduates, for example while the increment in earnings due to a little more schooling pays off a whole lot, most notably at the high end. This is why the college degree for men has become a defensive good. It provided almost no wage growth during the entire decade of the 1980s, but at least it kept college graduates from suffering the nearly 13 percent loss sustained by those with only a high school diploma. For men, completing college during the 1980s became the equivalent of donning a brand new pair of running shoes to go bear hunting with a companion. If the bear ends up attacking you, you cannot outrun it. But in order to survive you need to outrun your friend. Anyone who has visited a vocational guidance counselor lately will recognize this as the principal underlying message. The college degree still outfits women with the equivalent of a new pair of Reeboks, but any less schooling leaves women trying to run in quicksand.</font></p>
<hr /><h3><font class="nonprinting"><i>The Economists' Lineup</i></font></h3>
<p><font class="nonprinting"><i></i></font></p>
<p> <font class="nonprinting">To explain this crisis, economists have offered up ten suspects: </font></p>
<p> <font class="nonprinting"><b>Suspect One: Technology.</b> Robert Lawrence of Harvard's John F. Kennedy School of Government and Paul Krugman, now at Stanford University, are the leading advocates of this position. They believe that the new information technologies skew the earnings distribution by placing an extraordinary premium on skilled labor while reducing the demand, and hence the wage, for those of lesser skill. This, they contend, is about all you need to explain current earnings trends.</font></p>
<p> <font class="nonprinting">The problem is that no one has any direct measure of the skill content of technology. Proving this hypothesis would require proving not just skill-biased technological change but also a tremendous acceleration in new technology during the 1980s. After all, at least some level of technological change occurred in earlier decades without such an adverse impact on earnings equality. What's so different about technology in the 1980s and 1990s? According to David Howell ("The Skills Myth," <i>TAP</i>, Summer 1994, No. 18), and Lawrence Mishel and Jared Bernstein in an Economic Policy Institute working paper, there is little evidence that the pace of innovation the speed at which new machines are brought to factories and new products are developed was any faster than during the 1960s or 1970s. Most businesses are not introducing technology that requires vastly improved skill. Many are simply paying less for the same skills they have been using all along while others are hiring better educated workers at lower wage rates to do the work previously relegated to lesser-educated employees.</font></p>
<p> <font class="nonprinting"><b>Suspect Two: The service-based economy.</b> Other researchers, including George Borjas of the University of California at San Diego, have argued that a primary suspect is deindustrialization the shift of jobs from goods-producing sectors to the service sector. In previous writings, I have estimated that between 1963 and 1987 the earnings ratio between college graduates and high school dropouts working in the goods-producing sector (mining, construction, and manufacturing) increased from 2.11 to 2.42 a jump of 15 percent. In the service sector, however, the education-to-earnings ratio mushroomed from 2.20 to 3.52 a 60 percent increase. All of the employment growth in the economy during the 1980s came in the services sector, where wages were polarizing between high school dropouts and college graduates four times faster than the goods-producing industries. Hence, this could explain at least part of the dramatic increase in earnings inequality.</font></p>
<p> <font class="nonprinting"><b>Suspect Three: Deregulation.</b> Government deregulation of the airlines, trucking, and telecommunications industries very likely has produced the same effect. In each of these industries, intense competition from new non-union, low-wage entrants, such as the short-lived People Express in the airline industry, forced existing firms to extract large wage concessions from their employees to keep from going bankrupt. How much this has contributed to overall earnings inequality remains an open question.</font></p>
<p> <font class="nonprinting"><b>Suspect Four: Declining unionization.</b> Unions have historically negotiated wage packages that narrow earnings differentials. They have tended to improve wages the most for workers with modest educations. As Richard Freeman of Harvard and a number of other economists have noted, the higher rate of union membership is one of the reasons for the smaller dispersion of wages found in manufacturing. That unions have made only modest inroads into the service economy may explain in part why earnings inequality in this sector outstrips inequality in the goods-producing sector.</font></p>
<p> <font class="nonprinting"><b>Suspect Five: Downsizing.</b> The restructuring of corporate enterprise toward lean production and the destruction of internal job ladders as firms rely more heavily on part-time, temporary, and leased employees is still another suspect in this mystery, according to Bennett Harrison of Carnegie Mellon. The new enterprise regime creates what labor economists call a "segmented" labor force of insiders and outsiders whose job security and earnings potential can differ markedly.</font></p>
<p> <font class="nonprinting"><b>Suspect Six: Winner-take-all labor markets.</b> The heightened competitive market, which forces firms toward lean production, may also, according to Robert Frank and Philip Cook, be creating a whole new structure of free-agency, "winner-take-all" labor markets. As Frank has explained ("Talent and the Winner-Take-All Society," <i>TAP</i>, Spring 1994, No. 17), in winner-take-all markets "a handful of top performers walk away with the lion's share of total rewards." The difference between commercial success and failure in such markets may depend on just a few "star" performers in movies the director and leading actor or actress; in the O.J. Simpson trial the conduct of just one or two trial attorneys. Given the high stakes involved in a multimillion dollar movie project or a murder trial involving a well-to-do client, investors are willing to pay a bundle to make sure they employ the "best in the business."</font></p>
<p> <font class="nonprinting">Today, the fields of law, journalism, consulting, investment banking, corporate management, design, fashion, and even academia are generating payoff structures that once were common only in the entertainment and professional sports industries. Just a handful of Alan Dershowitzes, Michael Milkens, and Michael Eisners can have a sizeable impact on the dispersion of wages in each of their occupations. There is considerable evidence that inequality is not only rising across education groups but within them, very likely reflecting such winner-take-all dynamics.</font></p>
<p> <font class="nonprinting"><b>Suspect Seven: Trade.</b> Even more fundamental to the recent restructuring of the labor market and a likely proximate cause of deindustrialization, deunionization, lean production, and perhaps even the free-agency syndrome is the expansion of unfettered global trade. According to trade theory, increased trade alone is sufficient <i>without</i> any accompanying multinational capital investment or low-wage worker immigration to induce the wages of similarly skilled workers to equalize across trading countries. Economists call this dynamic "factor price equalization." As the global economy moves toward free trade, lower transportation costs, better communications, and the same "best practice" production techniques available to all countries, factor price equalization is likely to occur. </font></p>
<p> <font class="nonprinting">Unfortunately, in a world like ours where there is a plentiful supply of unskilled labor juxtaposed to a continued relative scarcity of well-educated workers, this "price equalization" <i>within</i> skill categories leads to a "wage polarization" <i>between</i> skill categories. The gap between the compensation of low-skilled workers and high-skilled workers everywhere will tend to grow. According to the well-respected trade theorist Edward Leamer of the University of California at Los Angeles, freer trade will ultimately reduce the wages of less-skilled U.S. workers by about a thousand dollars a year, partly as a result of NAFTA. If factor price equalization is a chief source of wage dispersion today, just consider the implications when China and India with their immense unskilled workforces enter fully into global markets.</font></p>
<p> <font class="nonprinting"><b>Suspect Eight: Capital mobility.</b> Freer trade generally provides for the unrestricted movement of investment capital across borders. This inevitably accelerates the process of growing wage inequality. Modern transportation and communications technologies, combined with fewer government restrictions on foreign capital investment, have led to increased multinational capital flows between countries. To the extent that companies move to take advantage of cheaper unskilled labor, transnational investment adds to the effective supply of low-skilled workers available to American firms, thus reinforcing factor price equalization.</font></p>
<p> <font class="nonprinting"><b>Suspect Nine: Immigration.</b> Increased immigration potentially has the same effect, if a disproportionate share of new immigrants enters with limited skills and schooling. This is true at least for legal immigrants. The typical legal immigrant in the U.S. today has nearly a year less schooling than native citizens. Undocumented immigrants surely have even less. As such, while many immigrants to the U.S. come here with excellent education and skills, there is little doubt that the large number of Central American, Caribbean, and Southeast Asians seeking refuge in this country has had the unfortunate side effect of at least temporarily boosting the supply of low-skill workers seeking jobs.</font></p>
<p> <font class="nonprinting"><b>Suspect Ten: Trade deficits.</b> The trade gap has contributed to the decline in those sectors of the economy that have in the past helped to restrain earnings inequality. Moreover, trade data indicate that the import surplus itself is disproportionately composed of products made by low-skilled and modestly skilled labor. This boosts the effective supply of workers at the bottom of the education-to-earnings distribution and thus depresses their relative wages.</font></p>
<hr /><h3><font class="nonprinting"><i>Whodunnit?</i></font></h3>
<p><font class="nonprinting"><i></i></font></p>
<p> <font class="nonprinting">Thus, in our rogue's gallery we have ten suspects: skill-biased technological change, deindustrialization, industry deregulation, the decline of unions, lean production, winner-take-all labor markets, free trade, transnational capital mobility, immigration, and a persistent trade deficit. Quantitatively parsing out the relative impact of all of these forces on wage distribution is fraught with enormous difficulty. Still, Richard Freeman and Lawrence Katz have attempted to do something like this, at least for the wage gap between men with a college degree and those with a high school diploma. The results of their research and that of some other economists are summarized in the chart above.</font></p>
<p> <font class="nonprinting">What do these results suggest? If the Freeman and Katz estimates are in the right ballpark, the answer to our mystery is the same denouement as Agatha Christie's in <i>Murder on the Orient Express</i>. They all did it. Every major economic trend in the U.S. contributes to growing inequality largely linked to merit. None of these trends shows the least sign of weakening.</font></p>
<p> <font class="nonprinting">Each trend reflects the growth of market forces and the decline of institutional constraints on competition. This was Young's essential message more than 30 years ago. Increased reliance on domestic market dynamics as the sole determinant of earnings produces inequality. Heightened competition within these markets, as a consequence of fuller integration into the global economy, exacerbates this wage dispersion. While it may be sinister, there is nothing conspiratorial about this phenomenon. It is embedded in the very nature of laissez-faire market dynamics. For this reason, meritocratic inequality is much harder to remedy than overt forms of discrimination based on race and sex.</font></p>
<hr /><h3><font class="nonprinting"><i>Policy Endgames</i></font></h3>
<p><font class="nonprinting"><i></i></font></p>
<p> <font class="nonprinting">Even economists who tout the merits of the market have come to recognize the need to soften the potentially devastating social impact of current income trends. Yet given the long-standing resistance to most forms of public intervention in the marketplace, the search for solutions has been restricted to just three types of countermeasures: education and training, immigration reform, and direct tax-and-transfer policy.</font></p>
<p> <font class="nonprinting">In theory, education can offset the effect of skill-biased technological change and factor price equalization. If somehow we could produce a true glut of symbolic analysts in place of high school dropouts, meritocratic inequality would begin to resolve itself. Education reduces the surplus of low-skilled workers and relieves the shortage of skilled workers. If this strategy also happens to increase the overall level of education, it has the added advantage of improving overall labor productivity and ultimately real wages. </font></p>
<p> <font class="nonprinting">A number of education and training programs have widespread appeal. These include expanding the Head Start program for disadvantaged preschool children, levying a corporate tax to finance on-the-job training, instituting a national apprenticeship program, and converting current grant and loan programs into income-contingent loans for college and university students. Other possibilities under consideration for education reform include setting national standards for school performance, introducing merit systems to reward successful teaching, instituting voucher systems, and increasing teacher and parent control over schools.</font></p>
<p> <font class="nonprinting">Legal restriction of immigration is a second possible means of reducing wage inequality. Canada has a higher rate of immigration than the United States. But immigration laws in the two countries have produced very different effects on their respective labor markets. Since the 1960s, U.S. policy has stressed family reunification. Canada, in contrast, employs a point system designed to produce a more skilled immigrant labor pool. This approach has produced legal immigrants in Canada who average 1.3 more years of education than native Canadians. If we ignore the thorny ethical issues surrounding the rights of political refugees and judgments about the worthiness of individuals seeking to immigrate a whole other debate one could imagine tilting immigration policy toward greater use of skill-based criteria. </font></p>
<p> <font class="nonprinting">Finally, if immigration control and education cannot do the job, there is the old standby of progressive tax-and-transfer policy to effect greater equality after wages are paid. Traditionally, most contemporary liberal economists have favored this method, for it entails the least interference with market forces.</font></p>
<p> <font class="nonprinting"><font size="+2">O</font>n the surface, this complement of liberal policies seems germane for coping with meritocratic inequality. Not surprisingly, all three policies are at the top of the domestic agenda of the Democratic Party. Yet, given the powerful set of national and global forces at work in the economy, these policies may not be enough.</font></p>
<p> <font class="nonprinting">A case in point is education and training. Greater equality in schooling does not by itself produce more equal earnings. The distribution of education has become significantly more even over the past three decades. Among year-round, full-time workers, the overall variation in completed years of schooling has declined by more than 25 percent since 1963. The performance of black students and other minorities on the Scholastic Aptitude Test (SAT) is further evidence of this convergence. In 1976, the average verbal SAT score for blacks stood at the 74th percentile of whites; by 1990 the average score was up to the 80th percentile. Math SAT scores for black students improved by the same amount.</font></p>
<p> <font class="nonprinting">But even as education backgrounds have converged, the importance of small differences in education has increased enough so to offset any equalizing effect education would otherwise have. Recall the distinction between the return and the rate of return of schooling. As such, no matter what other benefits might flow from increased schooling, expanded education is not, by itself, a certain cure for inequality.</font></p>
<p> <font class="nonprinting">Job training programs have made even less headway. While the federal government has experimented with a bevy of programs from the original Manpower Development and Training Act (MDTA) of the Great Society to the Job Training and Partnership Act (JTPA) of the 1980s, repeated evaluations suggest mixed results at best. Some programs like the Job Corps, which provide long-term training opportunities to disadvantaged youth, have been cost effective. The vast majority, however, have provided dubious returns. And even when these programs are deemed successful, the earnings advantage they give participants produces only the slightest deviation in the trend toward income inequality. </font></p>
<p> <font class="nonprinting">James Heckman of the University of Chicago has estimated just how small this deviation really is. Assuming a generous 10 percent rate of return on investment, he calculates that the government would need to spend a staggering $284 billion on the U.S. workforce to restore male high school dropouts to their 1979 real incomes. To restore education-based wage differentials to 1979 levels without reducing the real incomes of existing college-educated workers would take more than $2 trillion.</font></p>
<p> <font class="nonprinting">Future investments in human capital programs may have a somewhat better track record than past attempts, particularly if they are well targeted. But one cannot ignore the enormous increases in inequality that have already taken place. And to keep inequality from growing even more quickly, government would have to expand these programs at a frenetic pace. This is not to say that there is no role for training in solving America's labor market problems. While more training may not significantly reduce inequality, it is nevertheless useful for raising overall productivity, providing individual workers with a defense against further wage decline, and for rectifying specific skill shortages which could otherwise lead to wage-led inflation.</font></p>
<p> <font class="nonprinting">Immigration reform may also have a marginal impact on the earnings distribution, but any improvement will be largely limited to regions of the country where immigration flows have been disproportionately large California, Texas, Florida, and perhaps a few states in the Northeast.</font></p>
<p> <font class="nonprinting">That leaves tax-and-transfer programs as the centerpiece for adjusting distributional outcomes. On paper, a suitably progressive set of tax rates combined with sufficiently generous transfer assistance could radically redistribute income after it is earned in the market. But in practice even such hard-to-win liberal measures as President Clinton's 1993 tax initiative produce relatively little redistribution. In 1977, when the federal tax system was significantly more progressive than today, the richest fifth of American families had 9.5 times the pretax total income of the poorest fifth. Federal taxes reduced the overall gap in relative shares by less than 20 percent; regressive state and local taxes wiped out this improvement. Given increased reliance on regressive payroll taxes and an aversion to any further increase in progressive income taxation, the tax system is unlikely to do much more.</font></p>
<p> <font class="nonprinting">The same is true of public transfer programs. Over the past 20 years, the New Deal safety net of unemployment insurance and welfare assistance has come under attack. Unemployment insurance covered more than 60 percent of the jobless during the 1961 and 1975 recessions. Despite the greater severity of the 1982 recession, only 43 percent of jobless Americans collected unemployment benefits. During the 1991 recession, coverage was down to 40 percent. While the Clinton administration implemented important reforms of the federal unemployment insurance system, the states and the federal government are unlikely to greatly expand coverage of the unemployed. As for the traditional welfare system, including Aid to Families with Dependent Children (AFDC), real benefit levels have been cut in many states and the government has imposed greater eligibility restrictions. Most of the proposed reforms of the AFDC program would change the dynamics of dependency, but do nothing to change the final distribution of income and they could, by forcing welfare recipients off the roles after two years, make matters worse.</font></p>
<p> <font class="nonprinting">Education and immigration reform, as well as redistributive tax-and-transfer policy, could contribute to reducing inequality, but they are by themselves even under the best of political scenarios no match for the concerted forces now driving the labor market. Indeed, relying exclusively on redistributive tax-and-transfer schemes to redress the growing inequality problem would likely require tax rates and transfer sums so large that there would be not only massive political resistance but real economic costs in terms of disincentives to investment and growth.</font></p>
<hr /><h3><font class="nonprinting"><i>The End of Inequality?</i></font></h3>
<p><font class="nonprinting"><i></i></font></p>
<p> <font class="nonprinting">There is, however, an additional policy agenda which a progressive government could embrace. This agenda would focus attention on the market forces that generate greater inequality. First, there is direct regulation of the labor market. As the empirical evidence demonstrates, the growth in earnings inequality has materialized in part because of a serious erosion in wages at the bottom of the skill distribution and a sharp decline in unionization. Higher minimum wage standards are one way government can affect the distribution of employee compensation. While raising the mandatory wage minimum theoretically entails some trade-off in the form of job loss, some recent studies prove the positive earnings impact of modest increases in the statutory minimum far outweigh any unemployment effect. Thus, the aggregate wage bill paid to less-skilled workers increases, improving the living standards of those on the bottom rungs of the earnings ladder.</font></p>
<p> <font class="nonprinting">Labor law reform makes it easier for unions to organize workers and provides an indirect method of accomplishing the same objective. While there are many reasons why union membership is dwindling, the recent <i>Fact Finding Report</i> of the U.S. Commission on the Future of Worker-Management Relations found undeniable evidence that the playing field is tilted heavily toward employers. Employers can permanently replace striking employees, which reduces the ability of unions to organize and to freely negotiate collective bargaining agreements. Unions do not have free access to employees during membership drives, and the penalties for employer unfair labor practices are trivial. To remedy this, government could ban permanent striker replacements, permit union organizers access to in-plant bulletin boards and public forums, impose more costly penalties on employers who violate the rights of union organizers, expedite legal remedies, and authorize binding arbitration for first contracts.</font></p>
<p> <font class="nonprinting">There are also industrial and trade policies to consider. Advocates of industrial policy can cite the success of the U.S. aircraft and agriculture industries, in which government purchases and research-and-development subsidies helped to create and maintain industries that now dominate world markets. The Carter administration's Chrysler loan guarantee, which provided an eleventh-hour reprieve from certain bankruptcy for the then-hapless automaker, turned around an old smokestack company and saved tens of thousands of well-paying jobs not only at Chrysler but at hundreds of its suppliers. With a new lease on life, Chrysler has surged back as a world leader in automotive technology. There are, of course, many instances of failed industrial policy the government's ill-fated Synfuels Corporation, for example but there are an ample number of cases on the other side of the ledger. Maintaining the nation's manufacturing base would have a salutary effect on incomes.</font></p>
<p> <font class="nonprinting">The other policy that can bolster the goods-producing sector is implementation of fair-trade language in trade agreements. One way of doing this is to use tariffs and trade barriers designed to give <i>temporary</i> protection to key industries, promoting industrial revitalization and economic transition. Another form of managed trade would tie the offer of reduced protection to a trading partner's compliance with certain environmental and labor standards. Critics of NAFTA argued for side agreements that would have linked the pace of tariff reduction to the rate at which Mexican wages caught up with Mexico's rapidly rising productivity. To be sure, government-imposed limits on trade can have detrimental effects on prices and therefore reduce average real incomes from what they might be under a free trade regime. Nevertheless, a carefully crafted set of trade policies that condones temporary protection of selected domestic markets and sets minimum labor and environmental standards can soften the distributional impact of factor price equalization. The trick is to keep such protection from becoming permanent or prompting a trade war.</font></p>
<p> <font class="nonprinting">One last point: What about the use of macroeconomic stimulus to counteract inequality? As noted above, growth per se is no longer an antidote to increased wage dispersion. But it is important to realize that it is the sine qua non for providing the tax revenue and the political will to address inequality through government action. Hence, overzealous attacks on government deficits that reduce aggregate demand and overly restrictive monetary policies that unnecessarily boost interest rates can poison the environment for possible egalitarian reforms.</font></p>
<p> <font class="nonprinting"><font size="+2">I</font>s there any evidence that more aggressive structural policies can help? Critics like Mickey Kaus, the <i>New Republic</i> columnist and author of <i>The End of Equality</i>, think not. In declaring that "the venerable liberal crusade for income equality is doomed," Kaus argues that</font></p>
<blockquote><p> <font class="nonprinting"> you cannot decide to keep all the nice parts of capitalism and get rid of all the nasty ones. You cannot have capitalism without `selfishness,' or even `greed,' because they are what make the system work. You can't have capitalism and material equality, because capitalism is constantly generating extremes of inequality as some individuals strike it rich . . . while others fail and fall on hard times.</font></p></blockquote>
<p> <font class="nonprinting">This may sound sensible, but it will come as remarkable news to a large number of our foreign capitalist competitors. A comparison of earnings trends across countries suggests that different institutional frameworks, all operating within a capitalist framework, produce substantially different distributional outcomes.</font></p>
<p> <font class="nonprinting">Kaus confuses capitalism with laissez-faire economics. All nations now face nearly identical pressures from technological change and global competition. Yet not all are experiencing the same degree of growing income inequality. Those countries with stronger unions, national wage solidarity agreements, generous social welfare programs, and more vigorously pursued industrial and trade policies have greater wage equality than countries pursuing pure free-market strategies. Relying on an extensive review of comparative statistics, Richard Freeman and Lawrence Katz conclude that while educational and occupational skill-wage differentials were growing rapidly in the United States and the United Kingdom during the 1980s, the experience elsewhere was quite different. Wage equality increased in the Netherlands; wage differentials did not change noticeably in France, Germany, and Italy; and wage dispersion increased modestly if at all in Australia, Canada, Japan, and Sweden. </font></p>
<p> <font class="nonprinting">In all of these capitalist countries, intensified global competition and technological innovation pushed the distribution of earnings and income toward greater inequality. Structural protection against this onslaught was greater in countries that did not follow the Reagan-Thatcher road to full-scale deregulation and laissez-faire trade policies. </font></p>
<p> <font class="nonprinting">True, the flexibility of the U.S. market may be partly responsible for lower overall unemployment rates compared with these other countries, but the price of this flexibility seems to be much higher levels of economic polarization and social inequality. Moreover, recent research by Rebecca Blank, a labor economist at Northwestern University, suggests there is little empirical evidence that social protection programs substantially affect labor market flexibility. Expansive social protection problems, then, are not the most important factor behind the high rate of unemployment in Europe, as many others suggest. Blank goes on to show that cutting back on social protection policies does not automatically reduce unemployment or increase the speed of labor market adjustment. Instead she finds that by enhancing worker well-being, social protection policies may actually permit flexibility that would not otherwise be possible. All of which means that the U.S. can adopt policies to directly redress income inequality without raising the specter of double-digit unemployment.</font></p>
<p> <font class="nonprinting">So can we avoid fulfilling Michael Young's prophecy for 2034? Can a society with high- and low-skill workers have a reasonably equitable distribution of income? The answer is a qualified "yes," but it requires that we focus on equal outcome, not just equal opportunity. There is a fundamental distinction separating progressives from neoconservatives and neoliberals, and it turns largely on this point: Progressives are willing to consider a broader and more balanced array of public policies to keep the free market from perpetrating and then perpetuating socially destructive levels of inequality. </font></p>
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</div></div></div>Mon, 10 Dec 2001 21:02:06 +0000141357 at http://prospect.orgBarry BluestoneGenerational Alliance: Social Security as a Bank for Education and Traininghttp://prospect.org/article/generational-alliance-social-security-bank-education-and-training
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"> <p>Generational Alliance: Social Security as a Bank for Education and Training by Barry Bluestone, Alan Clayton-Matthews, John Havens, and Howard Young Criticism of public programs in recent years has increasingly taken on the tone of a generational conflict. Critics point to the high cost of Social Security pensions, Medicare, and nursing homes and raise the specter of a feud between the generations, as if the old were living riotously off the young and the middle-aged.</p>
<p>Of course, the elderly are not really a separate <i>special</i> interest, since the rest of us hope to live long enough to become equally special. But the effort to frame social policy as an issue of "generational equity" has touched a raw nerve. Americans who are retired, or approaching retirement, are concerned about the commitment to Social Security, and many people of working age worry that they are paying higher taxes into a system that neither gives them any apparent current benefit nor provides them with a secure future. </p>
<p>Americans now have an opportunity, however, to turn generational conflict over Social Security into a generational alliance. The solvency of Social Security ultimately depends on the long-term growth of the American economy, and that in turn hinges on the skills and inventiveness of the American people. Social Security reserves are currently used to finance the budget deficit. Instead, we should invest a portion of that surplus in raising economic productivity -- specifically, by assisting students and workers to pay for postsecondary training and education. Young workers would then benefit from Social Security at the start as well as at the end of their careers. </p>
<p>The public policy initiative for reuniting the interests of the generations and strengthening the foundations for future economic growth is the education equity program outlined here. Under the program, part of the growing Social Security surplus would be borrowed to make awards for schooling beyond high school. Students could either cover college and university expenses or pay for vocational training, retraining, and apprenticeships. They would pay for their awards plus interest through a payroll withholding system, and the amount they repay would depend on their future earnings. </p>
<p>The entire program is designed so that all costs are covered by borrower repayments. Losses due to the low income, death, or disability of some borrowers are offset by repayments above cost by those who reap higher incomes. The demographic trends over the next half century or so work in favor of the program. In the program's early years, while Social Security surpluses are growing, education equity will borrow from Social Security. But about thirty years from now, when the Social Security system will need those funds to cover its obligations to retirees, education equity will be generating a positive cash flow back to Social Security Thus the system will be virtually assured of solvency while the entire economy benefits from a better educated and trained workforce. </p>
<p>The basic idea of an "income-contingent" system of student loans, to be repaid through the IRS, is by no means new. Indeed, one variant of the proposal comes from an eminently conservative source. Years ago, Milton Friedman outlined such a plan. More recently, Robert Reischauer, now the director of the Congressional Budget Office, put forward a similar proposal. Some universities, such as Yale, have experimented with the idea, and Michael Dukakis advocated one version of it in his 1988 campaign. We make no claims, therefore, to inventing the concept. But we have revised it considerably -- particularly as it relates to Social Security -- and worked out many of the details and long-term implications through a computer model. Here we explain how it would work and why it makes sense. </p>
<p><font class="headline">Education Equity</font><br />
Ours is a plan for education equity in both senses of the term equity -- fairness and investment. The program would help to achieve fairness in education by making college and postsecondary training more widely available, particularly to the growing number of students from families that have difficulty affording the costs. It would also help to achieve greater fairness by expanding aid for training and retraining as well as higher education. The education equity program would not only augment our national and personal investments in education. The program's awards to students resemble equity investments like corporate stock more than they do any debt instrument, much less a welfare check. What students owe in repayments will depend on how "profitable" their education proves to be. They will pay back into the system in proportion to how much financial benefit they derive from it. </p>
<p>Under the plan we have developed, which we call "Equity Investment in America" (EIA), nearly all U.S. citizens, regardless of family income, could receive as much as $10,000 a year, up to a lifetime limit of $40,000, for education or training at an accredited or licensed school. Students would repay the education equity fund on the basis of a fixed repayment rate applied to their annual earnings, up to a cap of $50,000. (In future years the annual and lifetime limits, as well as the earnings cap, would be adjusted to take account of increasing earnings and educational costs.) </p>
<p>Today we rely on a baffling array of loan and grant programs to help students and their families pay for postsecondary education. However, because the aid is inadequate, many young people are unable to afford the training they need. Current loan programs also result in heavy, fixed obligations shortly after graduation, leading many borrowers to default. The result is a system that works badly for many families, young people, and the public. Families needing aid cannot qualify; young people receiving aid must repay when they have limited ability to do so; and the public finds that a significant portion of its investment in student loans is never returned. </p>
<p>The education equity program helps to resolve these problems by changing the distribution, timing, and method of repayment. Unlike programs based on parental income, the education equity program is based on the future income of the student who receives the award. Indeed, the principle involved is not so much ability-to-<i>pay</i> as it is ability-to-<i>repay</i>. And because it is based on future income, the burden is not concentrated immediately after graduation. The shift in timing, the progressive distribution of repayment obligations, and the use of payroll deductions to collect repayments overcome the problem of high default rates that typically plague student loan programs. </p>
<p><font class="headline">Education Equity and Economic Growth</font><br />
Hardly anyone today doubts the central contribution of education to economic prosperity. In a global economy where capital and technology are becoming infinitely mobile, the one factor that provides a nation with a comparative advantage is the caliber of its labor force. Politicians, corporate executives, and even our Japanese competitors continually remind us that the nation's prosperity will suffer if we fail to improve education at all levels. We need to reinvigorate our primary and secondary schools, overhaul training, and maintain our edge in higher education, the one area where the United States is preeminent. </p>
<p>Economic data provide corroborating evidence for the belief that education matters. The value of education beyond high school shows up in the enhanced earnings of those who attend college. Over the lifetime of the average worker, according to our calculations, a college degree has a "present discounted value" of approximately $500,000 in today's dollars. </p>
<p>Equally important is the role that access to postsecondary schooling plays in separating the haves from have-nots. The ratio of annual earnings of college graduates to high school graduates has risen from 1.5 to 1 in 1963 to over 1.8 to 1 in 1987. That increase reflects the economy's increasing need of educated people. In inflation-adjusted dollars, high school graduates have seen their annual earnings slip by 11 percent since 1973, and high school dropouts have experienced a 23 percent decline. College graduates, on the other hand, have been able to hold their own. </p>
<p>The widening income gap is especially pronounced in the service sector where most job growth is found. The introduction of advanced technologies into virtually all realms of production and the spread of global corporate investment strategies are driving up the demand for highly trained workers at one end of the occupational spectrum, while the excess supply of less-skilled workers readily available worldwide is pushing wages down at the other. Though supply and demand cannot explain all of the evolving patterns in the labor market, they dearly contribute to the polarization developing in some leading industrialized countries, particularly the United States. </p>
<p><font class="headline">Rising Costs, Limited Aid</font><br />
While schooling beyond high school is becoming more critical than ever for individual advance as well as economic growth, the price of schooling is outpacing inflation. Public resources available for loans and grants have not kept up with the needs of either low- or middleincome families. According to Kenneth C. Green of the Center for Scholarly Technology at the University of Southern California, tuition "sticker shock" is forcing students to "buy down." Students who would have gone full-time are forced to attend part-time. Some whom four-year colleges would have accepted are dropping down to two-year schools, and more students from low-income homes pick vocational schools over college if they go anywhere at all. In a recent <i>USA Today</i> survey of high school graduates, one-third said they had put off college because of the expense. </p>
<p>College dropout rates tell the same story. According to the U.S. Department of Education, a mere 3 percent of students with family incomes over $38,000 drop out in their freshman year. The dropout rate for students from low-income families is closer to 15 percent. Black enrollment suffers most. The American Council of Education reports that college enrollment rates among blacks began to slide after 1976. For black men, the enrollment rate declined by 7.2 percentage points between 1976 and 1986. While intense college recruiting in the past four years has arrested the downward trend, black male enrollment has just barely recovered to its earlier level. </p>
<p>Anyone with college-age children can attest to the burden of college costs. The College Board reports that by 1988-89 the cost to an in-state student at a four-year public college or university averaged over $23,000, including tuition and fees, room and board, and other school expenses. The same education at a private four-year institution cost just under $50,000. At the elite schools, total expenses run closer to $90,000. Yet the amount of federal student aid available in the form of grants and loans has not kept up with these costs. In 1979, according to the <i>American Freshman</i> survey conducted by UCLA's Higher Education Research Institute, nearly 32 percent of all freshmen received Pell grants to attend college. Ten years later, the percentage was down to less than 22 percent. Meanwhile the proportion of students receiving Stafford and Perkins loans from the federal government has risen only marginally, from 21 to 25 percent between 1979 and 1989. </p>
<p>College enrollments have not fallen off precipitously only because colleges and universities are providing more grants and scholarships out of their own revenue. The UCLA survey notes that between 1979 and 1989 the percentage of freshman receiving college grants and scholarships increased from 11.3 to 20.3 percent. The colleges are charging higher tuitions to affluent families in order to subsidize students from low- and lower-middle income backgrounds. </p>
<p>Part of the difficulty stems from the cut-off of federal assistance to middle-income students. In 1979 the government set a $32,500 ceiling on family income for college grant support. Today, despite inflation, a family must have an income under $28,000 to qualify for aid. Even if a student is eligible, grants have not kept up with college costs. Stafford student loans, the largest of the federal programs, provide a maximum of $2,625 per academic year for the first two years of undergraduate study and $4,000 for each subsequent year, up to a five-year maximum of $17,250. A student who takes out the maximum in Stafford loans over four years still must come up with another $9,750 on average to attend a public university and at least $26,750 to attend a private institution. Perkins loans have higher ceilings, but fewer than 3 percent of all freshmen take advantage of them. </p>
<p>For those not eligible for federal aid, going to the private market can cost a bundle. One example is the Education Resources Institute TERI loan, which provides a student up to $20,000 a year, typically at the prime interest rate plus 2 percent. The current annual percentage rate (APR) comes to 15.3 percent at regular commercial banks for a typical fiveyear TERI loan with interest and principal deferred while in school. </p>
<p>Besides carrying high interest rates, all these loans require students to begin repaying almost as soon as they finish school, despite their generally limited initial earnings. Unsurprisingly, the default rates are very high: 18 percent for those who attended two-year public colleges, 14 percent for those from two-year private schools, 7 percent for those who went to either private or public four-year colleges, and a whopping 33 percent for those who used their loans to go to trade schools. </p>
<p><font class="headline">The Basics of the Program</font><br />
Unique to the education equity program is the structure of the awards. Each student repays according to the individual return on his or her investment in education. But no matter how much any particular student repays, the system as a whole is assured full repayment. The repayment rates are explicitly set so that, on average, for each cohort of program participants (grouped by the year in which they receive an award and their age), the total principal plus accrued interest on the awards will be repaid to the education equity fund. To cover the administrative expenses of the program and to recapitalize it to ensure it is out of debt to Social Security before the middle of the next century, the repayment schedule includes a 1.75 percent premium over the U.S. Treasury bond rate (.25 percent for administrative expenses; 1.50 percent for recapitalization). Under these terms, in 1991 the implicit interest rate in the program is expected to be 9.95 percent. </p>
<p>Organizationally, the education equity plan is relatively simple. It would replace the current Stafford and Perkins loans. On the other hand, direct federal subsidy programs, such as College Work Study and the Pell and Supplemental Educational Opportunity Grants (SEOG), would be retained as incentives for students from low-income families. Education equity would be implemented by a new agency of the U.S. Department of Education, the Equity Investment in America (EIA) Fiduciary Trust. The trust would receive funds from Social Security's Old Age, Survivors, and Disability Insurance (OASDI) Trust Fund and from repayments from individuals who receive education equity awards for their education. In addition, the EIA Fiduciary Trust would have authority to float U.S. Treasury bonds in the unlikely event student demand for funds so exceeded expected levels that the EIA Trust Fund would require more than 50 percent of the outstanding OASDI surplus. </p>
<p>To avoid what economists call "adverse selection" -- in this case, the tendency among those who expect to have high earnings not to use the program -- education equity repayments would be required only on the first $50,000 of earnings each year. This cap somewhat reduces the redistributive effect of the plan, but it makes it more attractive to those with higher expected earnings and thereby adds to the program's payback. A buyout provision permitting early completion of repayment obligations is also available to all participants. </p>
<p>Program participants repay their education equity obligations through payroll withholding, or if self-employed keep annual account through a special form included in their regular income tax filing. The Internal Revenue Service would credit repayments to the EIA Fiduciary Trust for a small service fee. </p>
<p><font class="headline">Ten Reasons</font><br />
Such a radical restructuring of postsecondary education finance deals directly with at least ten problems inherent in current methods of supporting students in their quest for schooling. </p>
<p>(1) Education equity eliminates much of the morass of current federal loan programs in favor of one universal, comprehensive plan available to all postsecondary students. </p>
<p>(2) Education equity provides a substantially greater amount of funds under more favorable terms than most current programs, thus allowing students to better meet the rising cost of postsecondary education. </p>
<p>(3) Education equity is available to all students in accredited postsecondary schools regardless of family income. There is no "needs test." It is a middleclass program every bit as much as one aimed at the low-income student. </p>
<p>(4) Since repayment is based on actual earnings, there is effective deferral of principal and interest as long as the student is pursuing full-time studies and has little wage and salary income. </p>
<p>(5) Income contingency, the shift in timing of repayment, and IRS collection should virtually eliminate defaults. Defaults on student loans now cost the U.S. Treasury in excess of $1.5 billion a year. </p>
<p>(6) The education equity program applies equally to all forms of post-secondary schooling from apprenticeships and training programs to graduate and professional schools. It does not discriminate between the student who pursues an undergraduate degree in political science and one who seeks retraining as a welder or office machine repairer. Under this program, the U.S. could follow the example of Sweden, where up to 3 percent of the labor force are in training or retraining in any given year. Many observers cite this "active" labor market policy as one of the principal reasons for Sweden's productive work force and high national income. </p>
<p>(7) The program does not reinforce racial and gender discrimination in the labor market, as do current programs that impose fixed obligations on those with lower earnings prospects. Under the education equity program, anyone whose earnings are depressed as a result of discrimination automatically owes less than if their earnings were higher. </p>
<p>(8) Because the education equity program is income-contingent, students will be more likely to enroll in programs that conform to their strengths and career goals than in programs that provide high earnings quickly and thereby help to repay fixed short-term loans. As a result, slightly more students may opt for careers in teaching, nursing, and other fields where the monetary rewards may be smaller than in law, for example, but where the contribution to society is arguably no less -- and some would argue, considerably more. </p>
<p>(9) Under the education equity program, students pay for their own education as the benefits from that education become manifest. In most cases, the program will remove a major financial burden from parents and place it on their children who benefit directly from the educational investment. </p>
<p>(10) Finally, the education equity program, by eliminating the need for the Stafford and Perkins loan programs, frees up $5.1 billion of federal education spending per year. These dollars -- or at least a portion of them -- could be used to expand the Pell and SEOG grant programs for the most financially disadvantaged students. </p>
<p>There are likely to be other benefits as well: simplified and cheaper administration of education loans is surely one of them. </p>
<p><font class="headline">The Social Security Link</font><br />
Linking education equity to the Social Security Trust Fund is not an absolute requirement for successful implementation. The EIA Fiduciary Trust could float bonds on its own and thereby capitalize the plan. Nevertheless, the link to Social Security is, in our opinion, singularly appropriate, given the debate over the disposition of Social Security's growing surplus. </p>
<p>Education equity, as presently outlined, presents a politically attractive alternative to both the Moynihan and the White House positions in the current Social Security debate. Moynihan suggests reducing the payroll tax rate to 6.06 percent for both employees and employers in 1990 and to 5.1 percent in 1991. Instead, we suggest keeping the rates presently in the law or reducing them only slightly. However, unlike its current use as an implicit deficit reduction measure' a portion of the OASDI surplus generated each year would be transferred to the EIA Fiduciary Trust. That way at least a portion of all OASDI funds will serve investment purposes, as they were originally intended, rather than for government consumption, as is the current practice. </p>
<p>The rationale for capitalizing education equity through Social Security is summarized best in a recent editorial in <i>The New York Times</i>. Responding to the Moynihan proposal, the <i>Times</i> reiterated a basic truth concerning virtually any public pension system: future benefits do not flow from retirement account surpluses but are ultimately paid for by future taxpayers. No matter how many trillions of dollars Social Security has in surplus on the books, the dollars that go out to beneficiaries must come from taxes paid by the productive, working-age population. The <i>Times</i> explains: "How much pain that causes [future taxpayers] depends on how much the economy grows between now and then. Future taxpayers won't mind the tax burden if they feel well off. <i>The best way to guarantee that is for the nation to invest in education and capital equipment."</i> (emphasis added) </p>
<p>If the education equity program contributes to future taxpayers' income, those taxpayers should also willingly contribute to the pensions of the generation that retires just before them. </p>
<p><font class="headline">How Education Equity Would Work for Individuals</font><br />
To demonstrate the impact of the education equity program on individual participants, we have developed a computer simulation model. In the four following illustrations, the necessary repayment rates are based on forecasts of expected inflation and interest rates and future growth in annual average wages and the cost of postsecondary education. The forecasts of inflation, interest rates, and wages are drawn from a Social Security Administration scenario, known as Alternative II-B. That scenario projects longrun annual real wage growth of 1.3 percent, inflation rates of 4.0 percent per year, and average interest rates on U.S. Treasury Bonds falling to 6.9 percent by 1995 and 6.0 percent by the next century. All of the figures are in constant 1990 dollars, with education equity awards based on expected increases in the cost of education. </p>
<p><font class="headline">Case 1: Traditional College Undergraduates</font><br />
Manuel and Mary both enter college in 1991 and in each of four years of undergraduate study receive the equivalent of $5,000 (in 1990 dollars) in education equity awards. Under the model's assumptions, both will pay 6.53 percent of their earnings over the next 25 years in order to meet their EIA Fiduciary Trust obligations. </p>
<p>A portion of Manuel's repayment schedule looks like this: </p>
<p></p><table cellspacing="5" cellpadding="5"><tbody><tr><td> Age </td>
<td> Earnings </td>
<td> Repayment </td>
<td> Percent of Earnings</td>
</tr><tr><td> 25 </td>
<td>$33,840 </td>
<td>$2,221 </td>
<td>6.53% </td>
</tr><tr><td>30</td>
<td> 46,364</td>
<td>3,029</td>
<td>6.53</td>
</tr><tr><td>40</td>
<td> 63,911 </td>
<td>4,180 </td>
<td>6.53*</td>
</tr></tbody></table><p> *The earnings cap ($50,000 in 1990 dollars) is $66,500 taking into account the average expected growth in earnings. </p>
<p>Mary's repayment schedule reflects a lower earnings stream: </p>
<p></p><table cellspacing="5" cellpadding="5" border="0"><tbody><tr><td> Age </td>
<td> Earnings </td>
<td> Repayment </td>
<td> Percent of Earnings</td>
</tr><tr><td> 25 </td>
<td>$26,849 </td>
<td> $1,754 </td>
<td>6.53%</td>
</tr><tr><td>30</td>
<td> 17,500</td>
<td>1,143 </td>
<td>6.53</td>
</tr><tr><td>40&gt;</td>
<td> 40,350 </td>
<td>2,636 </td>
<td>6.53</td>
</tr></tbody></table><p>Both Manuel and Mary complete their obligations to EIA when they reach age 45 in the year 2018. Note that while Manuel and Mary both pay 6.53 percent of their earnings in education equity repayments at age 25, Manuel pays 27 percent more than Mary because of his higher income. Moreover, in this example, Mary pays only $1,143 when she is 30, since in that year she worked half-time immediately after the birth of her first child. </p>
<p><font case="headline">Case 2: Advanced University Degree</font><br />
Alex and George make the same education equity investment of $20,000 in their undergraduate careers and then add three years of graduate training for an additional $20,000 in education equity awards. The calculated repayment rate on this sizable total award is 11.60 percent of earnings up to the earnings cap of $50,000. </p>
<p>Alex's dollar repayments rise as his income increases (and as the earnings cap rises with the average wage in the labor market). However, because Alex reaches the cap soon after his thirtieth birthday and his earnings continue to grow faster than the increase in the cap, his repayment rate as a percent of income declines. At age 40, Alex wins a promotion within his firm along with a large raise. Since he is already at the earnings cap, his annual payment increases by less than $500 between the age 35 and 40: </p>
<p></p><table cellspacing="5" cellpadding="5" border="0"><tbody><tr><td> Age </td>
<td> Earnings </td>
<td> Repayment </td>
<td> Percent of Earnings</td>
</tr><tr><td> 30 </td>
<td> $55,294</td>
<td> $6,413 </td>
<td>11.60%</td>
</tr><tr><td>35</td>
<td> 66,657 </td>
<td>7,245 </td>
<td>10.87 </td>
</tr><tr><td>40&gt;</td>
<td> 92,000</td>
<td>7,710 </td>
<td>8.38</td>
</tr></tbody></table><p>George's repayment rate declines, but more slowly than Alex's. By age 40 he is paying the maximum like Alex, but because of his lower annual wage, he pays a slightly higher proportion of his income: </p>
<p></p><table cellspacing="5" cellpadding="5" border="0"><tbody><tr><td> Age </td>
<td> Earnings </td>
<td> Repayment </td>
<td> Percent of Earnings</td>
</tr><tr><td> 30 </td>
<td> $48,216</td>
<td> $5,592 </td>
<td>11.60%</td>
</tr><tr><td>35</td>
<td> 65,323</td>
<td>7,245 </td>
<td>11.09</td>
</tr><tr><td>40&gt;</td>
<td> 78,964 </td>
<td>7,710 </td>
<td>9.76</td>
</tr></tbody></table><p><font class="headline">Case 3: Non-traditional Part-Time Undergraduate</font><br />
The education equity program works just as well for a non-traditional student. At age 30, Barbara decides to earn her B.A. degree on a part-time basis while continuing to work. Beginning in 1991, Barbara takes out an education equity award of $2,500. Over the six years it takes her to graduate, she obtains $15,000 worth of education equity awards. At age 36, Barbara has just graduated and she is earning $25,070 (in 1990 dollars). Her repayment is $1,087 or 4.34 percent of earnings. Had Barbara not gone to college, she would have earned at age 36, according to our simulation, $3,187 less. As a result, her education equity repayment that year was equal to about 34 percent of her additional earnings. Later in her career at age 52, Barbara is earning $40,460. Her repayment is now $1,755, still 4.34 percent of earnings. If for some reason Barbara did not work at all when she was 52, her repayment would be zero. </p>
<p><font class="headline">Case 4: Vocational Training</font><br />
Bob decides to enroll in a vocational retraining program at age 45 after losing his job at an auto parts manufacturing firm. Bob takes an education equity award of $2,500 in 1991 to invest in his training. After completing a training program in computer programming, he gets a full-timejob that pays $28,371. That year he repays $324 to the EIA Trust Fund or 1.14 percent of his new earnings. Ten years later at age 56, Bob is still working as a programmer and making $36,898. His repayment is $421. Relative to what he would have made without the training, we calculate that Bob is paying only about 6 percent of his additional earnings in education equity repayments. </p>
<p>These are but four of literally thousands of "cases" that could be simulated. The basic point is the same. By spreading out repayments over an extended period and by protecting participants against high costs when they are unemployed or their incomes lag, the EIA program provides students with an affordable and equitable method for financing their own educations with built-in insurance against what financial experts call "downside risk." </p>
<p><font class="headline">Will Education Equity Break the Social Security Bank?</font><br />
Financing a program as large as education equity will not be cheap, particularly given the size of the potential market for education equity awards. It will take hundreds of billions of dollars over the first decade to fund the program. Will there be sufficient funds to cover its cost? Will the EIA Fiduciary Trust be in a position to repay the money it borrows from the Social Security surplus? By the middle of the next century will the education equity fund or Social Security be in jeopardy of bankruptcy? </p>
<p>To answer these questions, a computer simulation of the overall education equity program was conducted. The simulation was based on the same economic assumptions as in the individual participant cases. Additional assumptions about potential college enrollments were obtained from the U.S. Department of Education. Social Security Trust Fund projections were taken from the 1990 OASDI Annual Report. </p>
<p>As it turns out ' the demographic trends are definitely in our favor. Population projections indicate that the traditional college-age population will not grow significantly during the rest of this century or well into the next. We assume, nonetheless, that college and university enrollments may rise by 10 percent as a result of the incentives of the education equity program, that 50 percent of those eligible will participate, and that 3 percent of the labor force will use education equity assistance for training and retraining each year. On those assumptions, annual awards will increase in number by no more than 400,000 between 1991 and 2010. After that, enrollments will slowly decline. As a result, an unanticipated explosion in the size of the program is unlikely </p>
<p>We project that education equity will assist about 9 million students each year, including 7 to 7.5 million at colleges and universities and about 1.7 million in vocational programs. We assume an average annual award that rises from approximately $4,400 in 1991 to over $8,500 (in 1990 dollars) adjusted by the expected increase in education costs. </p>
<p>Even with participation of this magnitude, the program fits well within the size of projected OASDI surpluses. According to the simulation, education equity's debt to Social Security will grow over the next thirty years, reaching a peak of about $1.6 trillion in current dollars ($494 billion in 1990 dollars). Thereafter, repayments into the education equity fund will finance new advances to students and reduce the net outstanding balance owed Social Security. By the year 2032, education equity will no longer need to borrow from Social Security and will begin to accumulate assets. By the year 2039, the loans from Social Security could be fully repaid. After that, the education equity fund could provide a substantial subsidy to Social Security. In this way, OASDI could eventually make a "profit" over and above the interest on the loans it made to EIA (see Appendix). </p>
<p>Moreover, in the short run, education equity will not break the Social Security bank before large-scale student repayments begin. The 1990 OASDI Annual Report forecasts that the Social Security Fund surplus will increase from $297 billion in 1991 to nearly $9.2 trillion by 2025 before declining back toward zero (see Figure 2). As a result, total cumulated education equity borrowing from Social Security, under the liberal assumptions used in this simulation, never amounts to more than 42 percent of the OASDI surplus. The percentage falls rapidly after the turn of the century. </p>
<p><font class="headline">Some Tough Questions</font><br />
A program as ambitious as education equity is bound to raise a number of questions about its funding, its impact on public and private institutions of higher education, and latent adverse side effects such as tuition cost inflation. </p>
<p><b>Q.</b> <i>Won't the implementation of such a large-scale program as education equity add too much to what we spend on postsecondary education?</i> </p>
<p><b>A.</b> No, for three reasons. First, education equity will not dramatically increase the total amount of money being spent on postsecondary education by those already planning to attend college or university. For many of them, the program will simply mean the substitution of a better financing mechanism for an inferior array of current funding programs. Second, an increase in the number of high school graduates electing higher education is warranted by the superior rates of return that college and university graduates now obtain. We are certainly no longer "overeducated" as was the belief during the 1970s when returns to higher education temporarily waned. And third, where education equity may turn out to provide the greatest new advantage is in boosting human resources in vocational training and retraining, where the U.S. clearly lags behind the competition. </p>
<p><b>Q.</b> <i>Won't the education equity program jeopardize public higher education by encouraging students to enroll in more expensive private schools?</i> </p>
<p><b>A.</b> No. While the repayment rates are reasonable, students will still be forced to pay a significant amount of their earnings over their lifetimes in education equity dividend repayments. As a result, students will not automatically abandon public higher education for higher priced private schools. Likewise, the $40,000 lifetime limit on awards forces students to be price conscious in making their investment decisions. Moreover, it is not unreasonable to expect that the overwhelming majority of individuals who decide to pursue higher education precisely <i>because</i> of education equity will choose lower-priced public colleges and universities. </p>
<p><b>Q.</b> <i>Won't education equity lead to enormous increases in the level of tuition and fees?</i> </p>
<p><b>A.</b> Not necessarily The EIA Fiduciary Trust could be a powerful ally against college cost inflation by refusing to permit students to use education equity funds at schools that persist in raising tuition and fees to unacceptable levels. Moreover, because students, rather than their parents, will be assuming more of the financial burden for their education, they will likely become a more significant source of tuition resistance. If tuition does continue to skyrocket at private schools, the antitrust action now tentatively under way may provide a partial check. </p>
<p>It is true that public colleges and universities may use the education equity program to reduce the size of state government subsidies. On some grounds, particularly given the interstate mobility of students after graduation and the subsidy of middle-class students from funds raised by regressive state taxes, higher in-state tuition may be justified. In an era of restrictive state budgets, education equity would relieve states of some of the tuition burden. Yet, to maintain a "good business climate," one can expect state legislatures to maintain relatively low college and university tuition and fee rates in order to provide strong incentives for their citizens to pursue productivity-enhancing higher education. </p>
<p><b>Q.</b> <i>What keeps unscrupulous operators from setting up "sham" training schools to take advantage of education equity-funded students?</i> </p>
<p><b>A.</b> The education equity plan requires that all institutions eligible for funded students be fully accredited and licensed by the states where they operate. The trust fund could be given oversight authority to do spot checks on state accreditation and licensing. To keep tuition and fees in line, the cost of education could be made one criterion for education equity accreditation. </p>
<p><b>Q.</b> <i>Won't use of the Social Security surplus for education equity reduce the funds available for current deficit reduction?</i> </p>
<p><b>A.</b> Absolutely. But, like Senator Moynihan, we believe that the Social Security Trust Fund surplus should not be "raided" to cover current government expenses. The federal government could continue to cut defense spending, using part of the "peace dividend" to cover the diversion of Social Security surpluses from deficit reduction. Alternatively, the federal government could raise taxes to cover current spending needs. Strengthening the progressive income tax by boosting the top rate for the highest income families back to 33 or even 38 percent would be a step in the right direction. </p>
<p><b>Q.</b> <i>Why should the Social Security surplus be used to fund education equity when there are so many other unmet needs in America that require funds?</i> </p>
<p><b>A.</b> To be sure, there are other unmet needs, such as preschool programs, primary and secondary schools, medical research, environmental protection, and housing for the homeless. However, postsecondary education with a repayment mechanism involving the program's own beneficiaries is perhaps the only one that assures the integrity of the Social Security Trust Fund. For other social programs, the Social Security Trust Fund is simply the wrong instrument. </p>
<p><b>Q.</b> <i>Isn't the payroll tax that funds Social Security terribly regressive? Why should we finance an education program on such a regressive tax?</i> </p>
<p><b>A.</b> Yes, the payroll tax is regressive and probably should be reformed, perhaps by raising the earnings cap and lowering the rate. But that is a separate issue and should not obscure the advantage of an ability-to-repay plan for education finance. </p>
<p><b>Q.</b> <i>How will the education equity program likely affect low-income students?</i> </p>
<p><b>A.</b> Education equity should provide additional resources to low-income students. First, the program permits students to borrow more funds with more reasonable repayment schedules. Second, Congress should take a portion of the $5.1 billion saved by eliminating the Stafford and Perkins loan programs and transfer it into the Pell and SEOG grants, which have been especially helpful to low-income students. </p>
<p><b>Q.</b> <i>Will the education equity program make state college prepayment programs like that in Michigan obsolete?</i> </p>
<p><b>A.</b> No. States that wish to set up college prepayment programs can still do so. Parents who wish to make substantial contributions to their children's education can do so using this mechanism. </p>
<p><b>Q.</b> <i>Won't education equity have a negative effect on philanthropic contributions to institutions of higher education?</i> </p>
<p><b>A.</b> Probably not. Most corporate and individual giving to higher education is for capital expansion, not current expenses. One suspects that corporations and individuals will continue to contribute to college and university endowments for such purposes. </p>
<p>Answering these questions obviously will not mollify all those who would oppose the education equity program. Moving toward such a radical restructuring of education finance will certainly have its detractors. Private banks, subsidized by government-guaranteed student loans, will certainly balk at losing this lucrative market. Those who are part of the vast bureaucracy involved in servicing the current array of loans may also object to a system that makes their efforts largely unnecessary. However, gains from the plan for students, their families, and the corporate sector should carry the day. </p>
<p>It is the rare government program that simultaneously satisfies a number of disparate public policy goals and at the same time has the opportunity to garner broad bipartisan support. The education equity program has the potential for being one of these. </p>
<p>The specifics of the program can, of course, be debated and revised, but the basic structure provides a sound basis for promoting education, economic growth, and equal opportunity Education equity achieves generational equity, moreover, not by retrenching on the elderly, but by putting our reserves for the elderly to work for the entire society </p>
<p>Fifty-five years ago, we established Social Security to provide for older Americans retiring from work. A decade later, we established the GI Bill for younger Americans returning from the war and wishing to improve their skills and education. No one in those days envisioned linking these two types of government programs. Now we can create a positive link between those coming of working age and those coming of retirement age. </p>
</div></div></div>Tue, 05 Dec 2000 02:50:21 +0000141647 at http://prospect.orgBarry Bluestone